Oil prices extended their decline as renewed diplomatic efforts revived market optimism that the conflict involving Iran will not escalate, while Washington's latest plan to intensify economic pressure on Tehran stopped short of imposing stricter measures on the nation's trading partners.

Brent crude fell nearly 4% to settle below $89 per barrel, marking its lowest level in over a week, while West Texas Intermediate (WTI) settled above $82 per barrel. A wave of developments eased traders' worries about a renewed flare-up in hostilities that could further disrupt shipping through the Strait of Hormuz, keeping prices under pressure.

With growing expectations that diplomatic channels could yield progress, crude slipped to fresh lows in post-settlement trading. Pakistan's Army Chief concluded a one-day visit to Iran, with Iranian media reporting that the trip achieved valuable outcomes. Additionally, according to a joint statement cited by the Oman News Agency, Iran and Oman discussed a "temporary framework" aimed at restoring navigation through the Strait of Hormuz.

Investors largely brushed aside Washington's Monday announcement of heightened economic pressure on Iran, as the Trump administration stopped short of imposing secondary sanctions on countries that engage in trade with Tehran, including major buyers of Iranian crude. Haris Khurshid, Chief Investment Officer at Karobaar Capital LP, noted: "The market had high expectations for this announcement, but what we ultimately saw was more of a warning on policy direction rather than an immediate hit to physical supply."

Brent for October delivery declined 3.9% to settle at $88.58 per barrel, while WTI for October delivery dropped 3.1% to settle at $82.36 per barrel.