Oil Tops $106 as Trump Rejects Iran's Hormuz Peace Plan — Gulf Markets Absorb the Whiplash

Brent crude jumped more than 2.6% to $107.04 a barrel on Monday, later settling near $105, after President Trump confirmed over the weekend that he had rejected Iran's latest proposal — a seven-day plan, brokered through Qatari mediators on the sidelines of the UN General Assembly — to reopen the Strait of Hormuz. Asked whether he was considering resuming strikes on Iran, Trump said only, "I am always thinking about it." Iran's foreign minister responded that the ball is now in Washington's court, insisting the US ambassador "has not read" Tehran's proposal. Meanwhile Saudi Arabia had barely finished absorbing a different kind of pressure: Houthi drones and ballistic missiles aimed at Riyadh and Khamis Mushayt on Saturday were intercepted by coalition air defenses, the latest in a string of strikes that included claimed attacks on Aramco facilities in Yanbu two weeks earlier.

What makes this particular moment for oil markets genuinely strange is that the geopolitical premium and the physical supply picture are pulling in opposite directions. Preliminary Kpler data shows exports from major Middle East producers actually rebounded to 12.8 million barrels a day in September, the highest since the war began in February, with shipments through Hormuz recovering toward 7.4 million barrels a day. And Saudi Arabia delivered a genuine piece of good news this week: the East-West Pipeline, knocked offline for ten days after drone strikes near Al Madinah province on September 10, resumed full exports through the Red Sea port of Yanbu late last week, restoring access to roughly 3.5 million barrels a day of alternative capacity that doesn't depend on Hormuz staying open. None of that stopped Monday's price jump. Markets are pricing a war that keeps almost ending and then doesn't, and a rejected peace plan resets the risk premium regardless of what the tankers are actually doing.

That volatility is landing on top of a rate environment that shifted two weeks ago. When the US Federal Reserve raised interest rates for the first time since 2023, five Gulf central banks followed almost immediately, because the UAE dirham, Saudi riyal, Bahraini dinar, Qatari riyal and Omani rial are all pegged to the dollar. The UAE raised its overnight deposit rate to 3.9%, Saudi Arabia's repo rate went to 4.5%, and Bahrain and Oman moved in step. That combination — tighter regional monetary policy plus a renewed oil-driven uncertainty premium — cuts two distinct ways across the Gulf. For producer treasuries in Riyadh, Abu Dhabi and Doha, every sustained dollar of higher crude is real fiscal upside. For anyone financing a project on variable-rate Gulf debt, this is simply a more expensive quarter than it was two months ago, war premium and all. Both things are true here at once, which is precisely why the region's response to this week's headline can't be reduced to a single number moving up or down.