US-Iran Conflict Hits 'Pause'; Brent Crude Plunges Over 7% Below $90, Gold Leaps $40 as Markets Await Fed's Crucial Decision

According to Zhitong Finance APP, after 13 consecutive days of military strikes, the confrontation between the United States and Iran abruptly hit the pause button last weekend, causing violent swings in the global commodities market. On Monday (July 27) during the Asian trading session, international benchmark Brent crude oil futures plunged over 7% after the open, breaking below the $90 per barrel mark; WTI crude oil futures also tumbled over 5%, hovering around $84 per barrel. Meanwhile, spot gold surged nearly $40 at the open, briefly touching $4096 per ounce, gaining more than 1%.

This sudden market reversal originated from a tacit understanding reached between Washington and Tehran over the weekend—the US suspended airstrikes against Iran, while Iran simultaneously paused its counterattacks. Market sentiment rapidly reversed from extreme “war premium” pricing, but whether this rebound marks a trend reversal or is merely a flash in the pan depends on the interplay of multiple variables this week.

Pause in Hostilities: A "diplomatic window" after 13 days of continuous strikes

On July 24, US President Trump broke his two-week-long routine of approving military strike plans daily and ordered US forces not to launch attacks on Iran that day. Since then, the US military has refrained from launching new airstrikes for two consecutive nights. US Ambassador to the United Nations Mike Waltz said on Sunday that the pause was intended to “provide more space for diplomatic negotiations.”

Iran also hit the pause button in sync. Iranian military spokesman Akraminia confirmed that since the US did not attack, Iran suspended its counterattacks as part of its “tit-for-tat” strategy. Meanwhile, an Omani delegation arrived in Iran to discuss new arrangements for reopening the Strait of Hormuz. A spokesman for Iran’s Foreign Ministry stated that talks between Iran and Oman on security and shipping management in the Strait “were fruitful and made some progress.”

However, the fragility of the ceasefire cannot be ignored. Iranian sources expressed “more skepticism than optimism” about America’s sincerity in the ceasefire, seeing it more as a tactical adjustment than a genuine shift in intent. Trump himself sent mixed signals—saying that Iran was “serious this time”, but also threatening that escalation “to a much higher level” was possible if necessary.

Oil Market Volatility: Brent briefly falls below $90, but still up 30% this month

Once the “pause” news broke, the oil market plunged instantly. Global benchmark Brent crude tumbled over 7% within minutes of the opening, briefly dropping below $90 per barrel before rebounding to around $92. WTI crude futures fell about 5.5%, quoted at $84.40 per barrel. European natural gas prices also collapsed, dropping as much as 7.8%.

This collapse followed a period of wild oil price rallies—the escalation of the US-Iran conflict from the Strait of Hormuz to the Red Sea had sent Brent up about 30% this month, even topping $100 per barrel last week. The conflict, which has lasted nearly five months, has sparked widespread fears about the impact on global inflation.

Even as the US paused its strikes, hostilities in the Red Sea direction continued. Yemen’s Houthi rebels claimed to have attacked three Saudi oil tankers within 48 hours and continued to enforce a maritime embargo on ships associated with Saudi Arabia. Saudi Arabia’s Yanbu—now the country’s main oil export port since the effective closure of the Strait of Hormuz, handling millions of barrels of crude daily—as well as Saudi Aramco’s refinery and export terminal in Jazan, are both threatened.

Saul Kavonic, Senior Energy Analyst at MST Marquee, commented: “Reports of a pause in strikes and progress in negotiations have raised hopes for renewed de-escalation paths. However, all the key issues including Iran's control over the Strait and its missile and nuclear programs remain unresolved, making any ceasefire highly likely to be temporary.”

Gold Rebound: From Safe-haven Suppression to Easing Inflation Fears

In tandem with the oil price plunge, gold has staged a long-awaited rebound. Spot gold opened nearly $40 higher at $4096.33 per ounce, up about 1%. Silver’s rally was even more robust, surging over 2.8% intraday. The logic behind gold’s rally is clear and direct: the pause in the US-Iran conflict eased oil supply risks and thus inflation concerns; falling oil prices also partly eased the pressure for Fed rate hikes, sending the US dollar index lower—it briefly dropped 0.23%.

However, the rebound potential for gold remains restricted by multiple factors. Independent metals trader Tai Wong noted that although gold and silver appear to have bottomed near $3950 and $55 per ounce respectively, a sharp escalation in hostilities could still send prices below these levels. The likelihood of a Fed rate hike this year remains at 92%, and Iran’s skepticism about the ceasefire further limits short-term upside for gold.

Since the outbreak of the US-Iran conflict in late February, gold has pulled back more than 20% from its historic high near $5600 per ounce. Around the current $4000 level, gold is stuck in a tug-of-war between “geopolitical inflation” and “rate hike expectations.”

Valuation Basis: The Fed's “Complicated Arithmetic”

This sudden geopolitical shift makes this week’s Federal Reserve meeting even more enigmatic.

Just a few weeks ago—when the June CPI posted its biggest monthly drop since April 2020—bets on a July rate hike had once dropped to about 10%. But in just a few weeks, three shocks reversed this narrative: the resumption of Middle East hostilities sent Brent crude above $100 a barrel; the Trump administration announced new tariffs of 10% to 12.5% on 60 countries; and the ongoing AI investment boom drove demand. By last week’s close, Fed funds futures showed the odds of a 25 basis-point hike this week had climbed to around 36%.

Monday’s oil plunge certainly empowered arguments for keeping rates on hold. But the issue is this: the Fed bases its decisions on June inflation data, not July’s intraday oil price swings. Earlier oil spikes have already amplified concerns about persistent inflation, while the full impact of new tariffs and the AI investment boom on prices has yet to be reflected. Analysts suggest that this meeting “could be the hardest to predict in years.”

Hawkish forces within the Fed are also approaching critical mass. Dallas Fed President Logan and Cleveland Fed President Mester have both called for rate hikes, and both hold voting power at this meeting. Citi expects that if there are more than two dissenting votes, the market will see this as an even stronger hawkish signal.

The Fed's policy meeting will be held July 28–29. The market has called this “the hardest meeting to predict in many years.” Oil price surges and rising energy costs have heightened inflation risks, but recent US inflation and employment data have remained relatively mild, providing a rationale for holding rates steady. The Fed’s imminent decision thus makes this contest highly complex. While the collapse in oil relieves inflation anxiety, earlier triples digits in crude prices have already sent rate hike expectations sharply higher. Amid this interplay of “geopolitical pause” and “policy suspense,” global capital markets are facing their most uncertain week in years.