Oman and Iran are drafting a protocol to "monitor" transit through the Strait of Hormuz — the first concrete diplomatic signal since the waterway effectively closed in late February — but markets whipsawed violently on Thursday as President Donald Trump simultaneously threatened to "bring Iran back to the Stone Age" if the war drags on.
A Diplomatic Opening in the World's Most Critical Oil Chokepoint
Iran's deputy foreign minister of legal and international affairs, Kazem Gharibabadi, told state news agency IRNA on Thursday that tanker traffic through the Strait of Hormuz "should be supervised and coordinated" with Iran and Oman. He added that any monitoring requirements "will not mean restrictions, but rather facilitate and ensure safe passage and provide better services to ships that pass through this route."
The statement, translated from Persian, was thin on specifics but its market impact was immediate. U.S. stock indexes that had been trading sharply lower Thursday morning — triggered by Trump's combative speech to the nation the previous evening — turned positive within minutes of IRNA's report hitting wires. Oil prices, which had surged overnight to fresh multi-week highs, eased from their peaks.
The Strait of Hormuz handles roughly 21% of the world's total petroleum liquids trade, according to the U.S. Energy Information Administration. It has been effectively closed since U.S. and Israeli strikes on Iranian military installations on February 28 ignited the conflict, prompting Tehran to retaliate by blocking, boarding, and, in several instances, striking tankers attempting transit. The closure has rapidly become what Goldman Sachs has called the largest oil supply shock in recorded history.
Trump's Escalatory Rhetoric Rattles Markets First
The morning's volatility began not with diplomacy but with Trump. In his address to the nation Wednesday night, the president threatened to strike Iranian power plants and civilian infrastructure if Tehran does not come to the negotiating table. He invoked the phrase "Stone Age" in reference to Iran's potential fate — language that immediately spooked oil traders and pushed Brent crude up more than 2% in overnight trading before the Oman news trimmed those gains.
"We haven't needed it, and we don't need it," Trump said when asked about the Hormuz closure, referring to the United States' comparatively limited reliance on Gulf oil imports. But that assertion collided with the reality facing American consumers: average U.S. gas prices have surged more than 30% in a single month, exceeding $4 per gallon for the first time in several years — a threshold historically associated with political pain for sitting presidents.
Trump's remarks gave no timeline for ending the conflict, deepening investor uncertainty. Rubio had previously warned the war would last "weeks more," a statement that contributed to Wall Street's fifth consecutive weekly loss last week. The S&P 500 has lost more than 12% since the conflict began, while Brent crude has surged over 59% from its pre-war levels.
The Oman Factor: Quiet Diplomacy in a Loud War
Oman's role in threading geopolitical needles in the Gulf is well-established. The Sultanate maintained diplomatic relations with Iran throughout decades of Western sanctions and brokered back-channel U.S.-Iran negotiations that contributed to the 2015 nuclear deal. That historical credibility gives the Gharibabadi announcement unusual weight.
The specifics of what a "monitoring protocol" would look like remain vague. Analysts at Citigroup noted in a research note Thursday that even a partial reopening — allowing tankers from neutral countries with Omani escort — could release meaningful volumes into the market. Iran exports approximately 1.5 million barrels per day in normal conditions, but the bulk of Gulf disruption concerns the flow from Saudi Arabia, the UAE, Kuwait, and Iraq, all of which ship significant volumes through Hormuz.
"If this results in even a modest supervised corridor — say, 2 to 3 million barrels per day under a joint flag arrangement — the market would price in a significant risk premium reduction," wrote one commodity strategist at Standard Chartered in a note seen by Reuters. Brent was trading around $118 per barrel as of Asian morning hours Friday, down from a peak of $127 earlier in the week but still nearly double its pre-conflict level.
Asian Markets: Reading the Mixed Signals
For Asian markets opening Friday morning, the situation presents a complex mosaic. Japan's Nikkei futures improved modestly on the Oman news, recovering some of the previous session's 1.8% decline. South Korea's KOSPI was flat in early trade, with energy-importing nations still far more exposed to sustained high oil prices than their export-heavy neighbours.
Indonesia, which imports more than 500,000 barrels per day to supplement domestic production, faces particular pressure. The government has been quietly rationing subsidized fuel amid spiraling costs for Pertamina, the state energy company, which faces a subsidy bill that has ballooned past $12.3 billion this fiscal year. The rupiah has weakened approximately 8% against the dollar since the war began, compounding import costs across the board.
Bank Indonesia has held rates steady so far, hoping the oil shock proves transient. A Hormuz monitoring protocol that credibly reopens shipping lanes could provide Jakarta significant fiscal relief — but the diplomatic language remains preliminary, and Iran's military establishment, which has previously vetoed ceasefire proposals cleared by political channels, has not yet publicly endorsed the Gharibabadi statement.
Market Outlook: One Headline From a Regime Shift
The bull case from here is straightforward: a formalized Hormuz monitoring deal, even a partial one, would allow markets to price out a portion of the war risk premium embedded in crude. Brent at $80-90 rather than $115-125 would meaningfully reduce inflationary pressure globally, give Asian central banks room to ease, and restore some confidence in emerging market currencies that have been battered since February.
The bear case is equally coherent: Trump's rhetoric suggests the U.S. is not close to a ceasefire, Iran's hardliners retain veto power over diplomatic initiatives, and the history of Middle East "breakthroughs" that dissolve within 48 hours remains a powerful cautionary tale. The Oman protocol announcement moved markets sharply on Thursday — but by Friday morning in Asia, traders were already hedging their optimism.
Oil's direction in the week ahead will likely hinge on whether Iran's military brass formally endorses the Gharibabadi framework, and whether Trump's threatened escalations remain rhetorical or translate into new strike orders. Until then, the world's most important chokepoint remains the most important variable in global markets — and the answer is still being written.