Oil prices fell below $100 a barrel on Monday and stock markets rose on hopes that the US and Iran are inching closer to a peace deal.

Brent crude futures, the global oil benchmark, were down 6% to $97.43 a barrel, the lowest level in two weeks, with hopes that an agreement to end the near three-month US-Israeli war on Iran can be struck.

However, while a framework has been negotiated, the US and Iran remain at odds over key issues such as Iran’s blockade of the strait of Hormuz. An Iranian government spokesperson cautioned that an agreement was “not imminent”. The strait’s de facto closure sent energy prices soaring after the US and Israel first launched missile strikes on Tehran on 28 February.

Warren Patterson, the head of commodities strategy at ING, told Reuters: “We’ve been at this stage before, only for talks to break down. Therefore, the market will likely be more cautious about overreacting.”

Even if the strait reopens, analysts say a return to normal oil flows will take months, while damaged energy infrastructure in Qatar and elsewhere is repaired. Last week, Barclays stuck to its average Brent crude oil price forecast of $100 this year, but said there were risks it could be higher.

Two tankers carrying liquefied natural gas were exiting the strait on Monday, heading to Pakistan and China, while a supertanker with Iraqi crude left the Gulf bound for China on Saturday after being stranded for almost three months, Reuters reported, citing shipping data.

The UBS analyst Giovanni Staunovo said: “We continue to believe that the key factors for the oil market to watch should be the physical oil flows, and so far flows through the strait remain restricted.”

Despite the fall on Monday, oil prices remain much higher than in the run-up to the Iran war, when a barrel of Brent crude was trading at about $70.

Japan’s Nikkei rose nearly 3% and the pan-European Stoxx 600 index was up 1%. Several markets were closed on Monday for a public holiday, including in the US and the UK. Stocks have largely shrugged off fears over the war’s consequences for the world economy, and focused more on the artificial intelligence boom and strong company profits.

The dollar dipped 0.3% against a basket of major currencies on Monday. The pound gained almost 0.6% to $1.3506, the highest since mid-May.

Gold climbed 1.46% to $4,574 an ounce.

Stephen Innes, an independent analyst, said: “Treasury [bond] futures rallied, gold climbed and equity futures pushed higher as investors started pricing the possibility that the world’s most dangerous energy choke point may soon reopen to something resembling normal flow.

“The market response made perfect sense given how much inflation fear and hawkish rate pricing had been embedded into the curve during the recent energy shock.”

Inflation fears have risen around the world because of the higher cost of oil, gas and many other materials including fertiliser, which is expected to drive food prices sharply higher in the coming months.

As a result, expectations of interest rate cuts from central banks prior to the Iran war quickly gave way to predictions of rate increases. Markets expect the Bank of England to raise rates twice this year.