Shares of USO, the largest exchange-traded fund tracking front-month crude oil futures, plunged $5.08 to $143.08 on September 22, extending a brutal five-session slide that has now erased 11.6% of the fund's value since September 15. The catalyst: a rapid unwinding of the geopolitical risk premium — the extra price traders pay when war or supply disruption seems likely — as diplomacy between Washington and Tehran suddenly looks plausible. Oil's War Premium Crumbles as Iran Talks and Saudi Pipeline Revival Hammer USO — Is This a Turning Point or a Head Fake?
Shares of the United States Oil Fund dropped $5.08 to $143.08 on Tuesday, capping a 11.6% decline in just five trading sessions, as two pillars of oil's war-era risk premium buckled simultaneously: Iran signaled a willingness to reopen the Strait of Hormuz, and Saudi Arabia restarted the pipeline that kept its crude flowing while the strait was shut.
Iran Offers to Unlock the World's Most Important Oil Chokepoint
Iran reportedly offered to reopen the strategically vital Strait of Hormuz within seven days if the U.S. eases military pressure and lifts its blockade on Iranian ports.
The offer is part of Tehran's efforts to revive negotiations and reach a permanent end to hostilities.
Iran's proposal was delivered to the U.S. via mediators on September 16th , and Tehran will use the U.N. General Assembly in New York this week to push for talks. Before the war, about 25% of the world's seaborne oil trade and 20% of global liquefied natural gas passed through this strait. Even the possibility of its reopening strips away the fear-driven markup traders had baked into every barrel, explaining crude's 6.4% single-day plunge.
Saudi Arabia Gets Its Backup Route Running Again
Saudi Arabia restarted operations at its East-West Pipeline and could resume exports from the Red Sea port of Yanbu later Tuesday.
The kingdom has been using the pipeline to reroute around 4 million barrels per day — about 4% of global supply — to Yanbu since Hormuz was effectively closed. Drone attacks forced the pipeline shut on September 13 , but its quick restart reassures the market that an alternative supply artery exists even if Hormuz diplomacy collapses.
Transit Data Shows the Strait Is Still Barely Open
Despite the diplomatic rhetoric, the physical picture remains dire. IMF PortWatch recorded just 8 transits on September 13 against a pre-crisis baseline of 85 per day.
Iranian officials have also ruled out a direct Trump-Pezeshkian meeting , suggesting the diplomatic path is narrow. If talks stall, the sell-off could reverse violently.
What USO Holders Should Watch
With WTI trading around $90 and Brent at roughly $101 , oil has shed weeks of geopolitical fear in days. USO tracks front-month WTI futures, meaning every dollar of risk premium that evaporates flows directly into shareholder losses. The fund's next move hinges entirely on whether this week's UN sideline meetings produce concrete steps — or just headlines.