Oil falls to more than one-week low as hopes for US-Iran breakthrough ease supply fears

Oil prices extended their sharp decline on Tuesday, falling to their lowest levels in more than a week as investors unwound the geopolitical risk premium that had built up during the recent conflict involving the United States and Iran.

As of approximately 12:07 PM GMT time, Brent crude futures traded near $86.68 per barrel, down $1.68, or 1.90%, while U.S. West Texas Intermediate crude fell to $81.33 per barrel, losing $1.28, or 1.55%.

The declines followed Monday's heavy losses, leaving both benchmarks well below the highs reached during last week's surge above $100 per barrel, when fears of severe supply disruptions dominated global energy markets.

Diplomacy replaces fear

The biggest catalyst behind Tuesday's decline was growing optimism that the United States and Iran could move toward a diplomatic solution instead of renewed military escalation.

President Donald Trump said Washington was holding "good talks" with Iran and suggested there was a chance of reaching an agreement, although he warned military strikes could resume if negotiations failed.

At the same time, reports indicated that Oman has secured backing from several Gulf states for a proposal that would allow Iran to collect voluntary transit fees through the Strait of Hormuz, offering a potential path toward restoring normal shipping through one of the world's most important oil corridors.

The prospect of improving diplomatic relations encouraged traders to reduce the sizable geopolitical premium that had been embedded in crude prices over the past two weeks.

Supply concerns begin to ease

Although shipping activity through the Strait of Hormuz remains below normal levels, investors are becoming increasingly confident that a complete shutdown of the route is becoming less likely.

The Strait carries roughly one-fifth of global oil consumption, making any disruption one of the largest risks facing the energy market.

Even so, traders are beginning to focus on the possibility that crude exports could gradually normalize if negotiations continue to make progress.

That shift in sentiment has outweighed the fact that security risks remain elevated across the Middle East.

 Risks have not disappeared

Despite the sharp decline in oil prices, geopolitical tensions have not been fully resolved.

Shipping through the Red Sea continues to face security threats, while attacks linked to Iran-backed groups remain a concern for regional energy infrastructure.

Saudi Arabia also confirmed that its Jazan refinery was shut down following a recent drone attack, highlighting that supply risks have not disappeared entirely.

However, investors currently believe these threats are less likely to produce the widespread supply disruptions that markets feared only days ago.

What comes next?

Oil traders will continue to monitor diplomatic developments between Washington and Tehran, as any setback in negotiations could quickly reverse the recent decline.

At the same time, attention will also turn toward upcoming U.S. inventory data and the Federal Reserve's policy decision, both of which could influence expectations for economic growth and future oil demand.

For now, the market is sending a clear message: investors believe the probability of a major supply disruption has declined, and they are rapidly removing the geopolitical premium that pushed crude prices above $100 only last week.

Oil prices extended their sharp decline on Tuesday, falling to their lowest levels in more than a week as investors unwound the geopolitical risk premium that had built up during the recent conflict involving the United States and Iran.

As of approximately 12:07 PM GMT time, Brent crude futures traded near $86.68 per barrel, down $1.68, or 1.90%, while U.S. West Texas Intermediate crude fell to $81.33 per barrel, losing $1.28, or 1.55%.

The declines followed Monday's heavy losses, leaving both benchmarks well below the highs reached during last week's surge above $100 per barrel, when fears of severe supply disruptions dominated global energy markets.

Diplomacy replaces fear

The biggest catalyst behind Tuesday's decline was growing optimism that the United States and Iran could move toward a diplomatic solution instead of renewed military escalation.

President Donald Trump said Washington was holding "good talks" with Iran and suggested there was a chance of reaching an agreement, although he warned military strikes could resume if negotiations failed.

At the same time, reports indicated that Oman has secured backing from several Gulf states for a proposal that would allow Iran to collect voluntary transit fees through the Strait of Hormuz, offering a potential path toward restoring normal shipping through one of the world's most important oil corridors.

The prospect of improving diplomatic relations encouraged traders to reduce the sizable geopolitical premium that had been embedded in crude prices over the past two weeks.

Supply concerns begin to ease

Although shipping activity through the Strait of Hormuz remains below normal levels, investors are becoming increasingly confident that a complete shutdown of the route is becoming less likely.

The Strait carries roughly one-fifth of global oil consumption, making any disruption one of the largest risks facing the energy market.

Even so, traders are beginning to focus on the possibility that crude exports could gradually normalize if negotiations continue to make progress.

That shift in sentiment has outweighed the fact that security risks remain elevated across the Middle East.

 Risks have not disappeared

Despite the sharp decline in oil prices, geopolitical tensions have not been fully resolved.

Shipping through the Red Sea continues to face security threats, while attacks linked to Iran-backed groups remain a concern for regional energy infrastructure.

Saudi Arabia also confirmed that its Jazan refinery was shut down following a recent drone attack, highlighting that supply risks have not disappeared entirely.

However, investors currently believe these threats are less likely to produce the widespread supply disruptions that markets feared only days ago.

What comes next?

Oil traders will continue to monitor diplomatic developments between Washington and Tehran, as any setback in negotiations could quickly reverse the recent decline.

At the same time, attention will also turn toward upcoming U.S. inventory data and the Federal Reserve's policy decision, both of which could influence expectations for economic growth and future oil demand.

For now, the market is sending a clear message: investors believe the probability of a major supply disruption has declined, and they are rapidly removing the geopolitical premium that pushed crude prices above $100 only last week.

The euro remained under pressure against the U.S. dollar on Tuesday as investors continued to position for the possibility of another Federal Reserve interest-rate increase.

As of approximately 9:50 GMT time, the euro traded near $1.1370, rising by a marginal 0.05% during the session after struggling to recover from its recent losses.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, held broadly unchanged near 101.50 after touching its highest level since July 1.

The euro’s limited rebound reflected continued demand for the dollar as investors reassessed the outlook for U.S. monetary policy.

Fed expectations support the dollar

Markets were pricing in an approximately 40% probability that the Federal Reserve would raise interest rates by 25 basis points at the conclusion of its meeting on Wednesday, compared with roughly 20% one week earlier.

Traders were also assigning a nearly 95% probability to at least one rate increase by September.

Higher U.S. interest-rate expectations generally support the dollar by increasing the returns available on dollar-denominated assets, making it more difficult for the euro to stage a sustained recovery.

U.S. Treasury yields have also remained close to multi-month highs, providing additional support for the greenback.

Falling oil offers limited euro support

Oil prices continued to decline after the United States paused attacks on Iran over the weekend, reducing some of the inflation concerns that had previously strengthened expectations of tighter Federal Reserve policy.

However, the decline in energy prices was not enough to generate a meaningful euro recovery.

The currency remained close to recent lows as investors waited for clearer guidance from the Federal Reserve and upcoming U.S. economic data, including second-quarter gross domestic product and the core personal consumption expenditures inflation index.

Euro outlook remains tied to Fed decision

The euro’s next major move will likely depend on the tone of the Federal Reserve’s policy statement.

An unexpected rate increase, or signals that another increase is likely in September, could push the euro below the $1.1350 level and strengthen the dollar further.

In contrast, a decision to leave rates unchanged accompanied by a more cautious message could trigger a reversal in crowded dollar positions and allow the euro to recover toward $1.1400.

For now, the euro remains relatively stable at around $1.1370, but its modest 0.05% gain highlights the difficulty it faces while U.S. rate expectations and elevated Treasury yields continue to favor the dollar.

Asian stock markets suffered a severe selloff on Tuesday as growing doubts surrounding artificial intelligence investment triggered heavy selling across the region’s semiconductor industry.

As of approximately 7:35 AM GMT time, South Korea was at the center of the turmoil. The benchmark Kospi had fallen by around 10%, after briefly extending its losses beyond 11%, forcing the Korea Exchange to halt trading for 20 minutes after the index remained more than 8% below Monday’s close.

Japan’s Nikkei 225 dropped more than 4%, while Taiwan’s Taiex lost close to 5% as investors aggressively reduced their exposure to chipmakers and other companies associated with the global AI boom.

China’s Shanghai Composite also traded lower, although its decline was considerably smaller. Hong Kong showed greater resilience, while Australia’s ASX 200 managed to post modest gains, highlighting how heavily the regional selloff was concentrated in technology-driven markets.

South Korea faces a historic rout

South Korea experienced the most dramatic losses because of the unusually large influence that semiconductor companies have over its stock market.

Samsung Electronics and SK Hynix, which together represent a substantial share of the Kospi, both plunged by approximately 13% as investors rushed to unwind positions accumulated during the powerful semiconductor rally earlier this year.

The intensity of the decline first prompted the exchange to activate “sidecar” restrictions that temporarily suspended program trading. As losses deepened, a broader circuit breaker was triggered, halting trading across the entire market.

The measures were designed to slow panic selling and give investors time to reassess conditions. However, the need to activate them demonstrated the scale of the pressure facing one of Asia’s best-performing markets of the past year.

AI optimism turns into valuation anxiety

The immediate trigger was another sharp decline in semiconductor stocks on Wall Street.

Nvidia fell around 5% during Monday’s U.S. session, while other major chipmakers also suffered heavy losses. The selling quickly spread to Asia, where many of the companies most closely linked to memory chips, semiconductor equipment and AI infrastructure are listed.

Investors are increasingly questioning whether the vast sums being committed to artificial intelligence data centers can generate profits quickly enough to justify current market valuations.

Those concerns have intensified as technology companies continue to announce enormous capital spending plans involving advanced processors, memory chips, electricity infrastructure and data-center construction.

Demand for AI hardware remains strong, but the market is no longer treating investment growth alone as sufficient justification for higher share prices. Investors increasingly want evidence that the spending will produce sustainable revenue and meaningful returns.

Chinese competition adds another layer of fear

The selloff was amplified by signs that China is accelerating its efforts to develop a more independent semiconductor industry.

Reports that Chinese manufacturers are beginning domestic production of advanced chipmaking equipment raised concerns about the future competitive position of established suppliers in Japan, South Korea, Taiwan and Europe.

Investors were also digesting the extraordinary stock-market debut of Chinese memory-chip producer ChangXin Memory Technologies, commonly known as CXMT. Its shares surged more than 400% during Monday’s debut, reflecting enormous investor enthusiasm for China’s domestic semiconductor ambitions.

The company’s rapid rise raised concerns that Chinese producers could eventually challenge the dominance of Samsung and SK Hynix in the global memory-chip market.

For investors, the threat is not simply that China could produce more chips. Increased manufacturing capacity could eventually create excess supply, place downward pressure on prices and reduce the exceptional profit margins currently enjoyed by the industry’s largest producers.

Japan and Taiwan caught in the chip rout

Japan’s stock market was dragged lower by companies closely connected to semiconductor manufacturing.

Memory-chip producer Kioxia suffered particularly steep losses, while equipment manufacturers and technology investment companies also declined sharply. Because semiconductor-related companies have played an important role in the Nikkei’s previous rally, their retreat placed heavy pressure on the broader index.

Taiwan faced a similar problem. The island’s stock market is dominated by the semiconductor industry, led by Taiwan Semiconductor Manufacturing Company.

Even relatively moderate declines in TSMC can have an outsized effect on the Taiex because of the company’s enormous index weighting. As the global chip selloff intensified, Taiwan’s broader market therefore suffered one of the largest declines in the region.

Not every Asian market collapsed

The session was not a uniform regional crash.

Australian shares traded modestly higher, benefiting from the country’s smaller exposure to semiconductor companies and the continued decline in oil prices. Lower energy costs can support businesses and consumers in countries that depend heavily on imported fuel.

Hong Kong also performed better than Japan, South Korea and Taiwan, while mainland Chinese losses remained comparatively contained.

That divergence shows that Tuesday’s turmoil was not primarily driven by a sudden collapse in the global economic outlook. Instead, it represented an aggressive reassessment of the AI and semiconductor trade after months of extraordinary gains and increasingly demanding valuations.

 Is the AI bubble beginning to crack?

One day of severe losses does not prove that the AI boom has ended.

Demand for advanced chips remains strong, major technology companies continue to expand their data-center networks and semiconductor manufacturers are still expected to report substantial earnings.

However, the character of the market has clearly changed.

Earlier in the rally, announcements of higher AI spending were generally interpreted as evidence of stronger future demand. Investors are now beginning to view the same spending plans as potential financial risks, particularly when the connection between capital expenditure and eventual profits remains uncertain.

That shift in perception can be extremely important. Markets do not require an actual collapse in AI demand to produce a major correction. They only require investors to become less willing to pay exceptionally high valuations for future growth.

What investors are watching next

Attention will now turn toward upcoming earnings from major U.S. technology companies and the Federal Reserve’s latest monetary-policy decision.

Corporate results will be examined for evidence that artificial intelligence is generating enough revenue to support the industry’s enormous investment plans. Weak guidance, slower cloud growth or further increases in capital expenditure without corresponding profits could deepen the selloff.

The Federal Reserve will also influence sentiment. Any indication that U.S. interest rates could remain elevated—or rise further—would increase the pressure on highly valued technology stocks by reducing the present value investors assign to future earnings.

Tuesday’s collapse therefore represents more than a difficult trading session for Asian equities. It is an early test of whether the semiconductor industry’s exceptional rally can survive a period in which investors are demanding profits, financial discipline and proof that the AI revolution can produce returns matching the extraordinary amounts being invested in it.

[1]: https://www.reuters.com/world/china/global-markets-global-markets-2026-07-28/?utm_source=chatgpt.com "AI anxiety sparks tech rout, broad selloff in Asian markets"