Brent crude futures sink 7.8% to $US101.27 a barrel after reports that the US is drafting a 14-point, one-page memorandum.
The proposal aims to halt the war and trigger a 30-day window for talks covering nuclear restrictions and sanctions relief.
Traders rush to price in lower geopolitical risk.
Markets quickly latch onto the idea that a structured negotiation process could ease supply fears.
Only three weeks earlier, confidence around safe shipping through the Strait of Hormuz collapsed when conditions on the ground failed to match the optimistic narrative.
Brent crude then launched into a 47% rally, blasting past its March high near $US120 a barrel.
Prices reached a four-year peak of $US126.41 last week, showing how quickly sentiment can reverse.
Renewed peace hopes in the past week have since dragged the global benchmark down as much as 23% to $US96.75.
Oil remains hostage to every diplomatic headline.
Fresh reports of the US plan face immediate pushback from Iran, tempering the market’s enthusiasm.
The speaker of Iran’s parliament openly dismisses the initiative while the country’s Foreign Ministry accuses Washington of acting in bad faith.
Any 30-day negotiation window is likely to be rocky, even if the memorandum is formally tabled.
Oil traders are caught between headline-driven sell-offs and a still-tense regional backdrop.
