Oil prices fell for a third consecutive session on Tuesday as traders bet that diplomatic momentum out of Islamabad would, eventually, deliver a halt to the five-week air war between Iran and Israel — even as fresh Houthi salvos and overnight Israeli strikes on Iranian gas infrastructure underscored how far the parties remained from an agreement.

Brent crude for June delivery traded at $103.40 a barrel by midday in London, down $1.85 from Monday’s close and roughly $22 below the $125.30 peak hit during the late-March panic. West Texas Intermediate settled at $99.10. Last week’s OPEC+ decision in Vienna to add about 1.5 million barrels per day of additional supply, announced after an emergency ministerial session, continued to ripple through forward curves, with the December 2026 contract slipping under $90 for the first time since the war began.

“The market is no longer pricing a worst-case closure of the Strait of Hormuz; it is pricing a messy, drawn-out de-escalation,” said Priya Nair, head of commodities research at Macquarie in Singapore. “Every hour that passes without a tanker incident drags another dollar out of the war premium.”

Equities recovered modestly. The S&P 500 opened up 0.6%, building on Monday’s 1.1% advance and trimming the index’s drawdown since the conflict began to roughly 2.9%. The Stoxx Europe 600 rose 0.8%, led by airlines and chemicals; Lufthansa added 3.4% after the carrier said it expected to restore a partial Gulf schedule next week. In Asia, the Nikkei closed up 0.9% and the Hang Seng gained 1.3%, helped by a softer dollar and a relief rally in shipping names.

Currency markets showed a similar pattern. The dollar index slipped 0.3% to 104.6, gold eased $18 to $2,386 an ounce after touching record highs last week, and the Swiss franc gave back some of its haven gains. The two-year U.S. Treasury yield rose four basis points to 4.21% as traders trimmed bets on a near-term emergency rate cut by the Federal Reserve.

The cautious optimism rests on developments in Pakistan, where Islamabad-hosted talks between U.S., Iranian, Saudi and Egyptian envoys produced what mediators on Monday called “framework principles” for a phased halt to hostilities. Iranian Foreign Minister Abbas Araghchi told state television that Tehran was “prepared to discuss a conditional cessation, on the basis of mutuality.” A senior State Department official, speaking on condition of anonymity to describe private exchanges, said Washington remained “cautious but engaged,” and emphasized that no ceasefire date had been agreed.

Traders said the asymmetry of news flow — diplomatic gains by day, kinetic exchanges by night — was producing intraday whipsaws of three to four dollars in Brent. Overnight, Israeli aircraft struck a South Pars gas processing complex in southern Iran, the third such strike in two weeks, and Houthi forces in Yemen launched what U.S. Central Command described as a “complex, multi-vector” attack involving cruise missiles and one-way drones aimed at shipping in the southern Red Sea. Saudi and Emirati air defenses intercepted two ballistic missiles fired earlier in the night. There were no reported casualties at sea.

“You cannot model this with a single number,” said John Reilly, a senior energy analyst at Citi in New York. “We are running scenario weights — a 45% probability of a ceasefire announcement by month-end, a 35% probability of prolonged low-intensity conflict, and a 20% probability of an escalation event that closes Hormuz for a meaningful period. The strip is consistent with that distribution.”

Shipping markets reflected the same uncertainty. The Baltic Dirty Tanker Index, which tracks crude shipping rates, eased 4% on Tuesday but remained 38% above its February average. War-risk insurance premiums for hulls transiting the Strait of Hormuz held near 0.9% of vessel value, down from a 1.2% peak last week but still roughly nine times pre-war levels. Maersk and CMA CGM said they would maintain rerouted Red Sea schedules around the Cape of Good Hope until at least May 1.

In Washington, the Senate’s narrow passage on Monday evening of the Sanders-Ocasio-Cortez bill imposing a moratorium on new hyperscale AI training runs added a second strand of volatility for tech-heavy benchmarks. The 52-48 vote — with three Republicans and two independents joining 47 Democrats — sent shares of Nvidia, Microsoft and Alphabet lower in pre-market trading before they recouped most losses by the open. The bill now moves to the House Ways and Means Committee, where its prospects are widely seen as uncertain.

“The Senate vote is a sentiment headwind, not a fundamentals event yet,” said Layla Hassan, a strategist at TS Lombard in London. “The capex cycle for the hyperscalers is already committed through 2027. What investors are pricing is the option value of an outright build pause, and right now they are giving it a low probability.”

European natural gas prices, which had spiked above 65 euros per megawatt-hour in late March on fears of a wider conflict, traded at 41 euros on the Dutch TTF benchmark Tuesday — still elevated, but back within the band that prevailed before the war. Norwegian flows were running at full capacity, and EU storage stood at 38% of capacity, slightly above the five-year seasonal average. Energy ministers from Germany, France and Italy are scheduled to meet in Brussels on Wednesday to review contingency plans for the summer injection season.

In emerging markets, Turkey’s lira and Egypt’s pound both firmed modestly, while the Pakistani rupee gained 0.5% on the back of foreign-exchange inflows tied to the diplomatic spotlight on Islamabad. South Korean and Taiwanese equities outperformed regional peers as semiconductor names rallied on easing energy costs.

Analysts cautioned that the current calm was contingent on the diplomatic track. Reilly said any breakdown in the Islamabad framework, or a successful attack on tanker traffic, would likely push Brent back toward $115 within a single session. Nair said the more probable risk was simply “time” — an extended, weeks-long negotiation that kept war-risk premiums embedded in oil even as headlines softened.

OPEC+ ministers are due to hold a technical review call on April 22, and Saudi Energy Minister Prince Abdulaziz bin Salman said in a written statement Monday that the group would “act decisively, in both directions” if market conditions warranted further adjustment.