Crude oil prices were set for their first weekly decline since the start of the year as the risk of a direct military confrontation between the United States and Iran de-escalated.

At the time of writing, Brent crude was trading at $68.09 per barrel, and West Texas Intermediate was changing hands for $63.95 per barrel, both slightly up from Thursday’s close but down from Monday.

Oil prices had been on a climb for seven weeks in a row, driven higher mostly by U.S. foreign policy in various parts of the world. The Iran nuclear issue has been by far the most bullish for benchmarks as the U.S. president threatened a strike on Iran unless it agreed to give up its nuclear plans. The two are holding talks today in Oman, but, as Reuters noted in a report earlier today, they have not agreed on the agenda.

“The two sides remain well apart, leaving tensions elevated. This should see the geopolitical risk premium remain in place,” ANZ analyst Daniel Hynes said, as quoted by Reuters. Any Middle Eastern tensions involving Iran are extra bullish for oil prices because of Iran’s control of the Strait of Hormuz and the potential closure of the chokepoint in case of conflict. Iran has never closed the Hormuz Strait before, and sceptics note that it is unlikely to do so because such a move would harm its own exports, and it will not continue for long given the U.S. military presence in the area.

Meanwhile, ING analysts have pointed out Iran’s neighbor, Iraq, and a disagreement with the U.S. as another bullish factor for oil prices. It seems Iraqi politicians favor Nouri al-Maliki as the next prime minister of the country, but the United States thinks al-Maliki is too close to Iran. President Trump has already threatened Baghdad with consequences if al-Maliki becomes PM.

By Irina Slav for Oilprice.com

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