MCX Crude Oil futures fell sharply on June 12, dropping 3.08% or 257 points to 8,087 per barrel from the previous close of 8,344. The decline accelerated through the afternoon session, with the contract falling from around 8,240 levels near 1 PM to below 8,090 by 1:37 PM, a steep vertical drop visible on the intraday chart. Over five days, crude is down 9.46%, and over one month it has fallen 16.42%, even as the contract remains up 55.39% year to date and 39.69% over one year.
The trigger: Iran’s Mehr reports MOU includes Hormuz reopening
The sharp afternoon decline coincides directly with reports from Iran’s Mehr news agency that a draft memorandum of understanding with the United States includes reopening of the Strait of Hormuz, cancellation of oil sanctions, and release of Iran’s frozen funds, alongside a US commitment to lift the naval blockade and withdraw forces from around Iran. The same MOU news drove the Nifty 50 to spike 1.14% in afternoon trade, and the crude selloff is the mirror image of that equity rally, both reactions to the same underlying news.
Why this collapses the oil price so quickly
Crude prices over the past several months have carried a substantial geopolitical risk premium tied directly to the Strait of Hormuz closure, which has structurally choked roughly one in five barrels of globally traded oil along with significant LNG volumes. Markets had priced in a prolonged, open-ended disruption after Iran repeatedly reiterated the closure was indefinite. The moment credible reports suggest that closure could reverse, along with sanctions relief that would bring Iranian crude back into the global market, traders rapidly unwind the risk premium that had been built into prices. This is a classic de-escalation unwind: the same speed at which fear premiums get added during escalation is mirrored when credible resolution signals emerge.
Why the move is happening so fast and so sharply
Oil markets are forward-looking and react to expectations rather than waiting for physical confirmation. If Hormuz reopens and Iranian oil sanctions are lifted, the global supply picture shifts from acutely tight, following seven consecutive weeks of declining US crude inventories, to potentially oversupplied as Iranian barrels re-enter the market. Traders are repricing for that scenario immediately rather than waiting for the tanker traffic to physically resume.
The caveat: this is still a draft
Mehr itself stated that the draft requires finalisation by relevant authorities on both sides, meaning final sign-off from US and Iranian leadership remains pending. Additionally, Mehr indicated that final negotiations will exclude discussion of Iran’s missile programme, a point that could become a sticking point for Israel, which was not a direct party to the talks and has insisted any durable deal must address Iran’s broader military capabilities. Until the MOU receives formal sign-off and the Strait of Hormuz reopening is confirmed through official channels and verified by shipping and tanker tracking data, today’s move represents the market’s best estimate of probability-weighted outcomes rather than a settled fact.
What to watch next
The crude price from here will track headline by headline on whether Trump and Khamenei formally sign the agreement, whether Israel raises objections that could delay or derail the framework, and whether actual shipping traffic through Hormuz resumes. Any signs of the deal stalling or Israeli pushback could see crude partially retrace today’s decline, while formal confirmation of the agreement and Hormuz reopening would likely extend the downward move further.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making any investment decisions.
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