Morning Highlights: Oil Edges Higher After 2% Drop as Iran Claims 'Guiding Principles' Agreed; Russia-Ukraine Talks End Without Breakthrough

Wednesday, February 18, 2026 | 6:15 AM EST

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MARKET SNAPSHOT

Oil edged higher after falling about 2% Tuesday as investors assessed progress in U.S.-Iran talks but remained cautious about prospects for a final deal. Brent rose $0.86 (.4%) to $68.28/bbl, while WTI gained $0.83 (1.4%) to $63.16/bbl as of 6:00 AM EST.

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IRAN TALKS: 'GUIDING PRINCIPLES' AGREED BUT NO DEAL IMMINENT

Iran and the U.S. reached an understanding Tuesday on main "guiding principles" in talks aimed at resolving their longstanding nuclear dispute, but that does not mean a deal is imminent, Iranian Foreign Minister Abbas Araqchi said.

This explains Tuesday's 2% selloff - markets interpreted the "guiding principles" language as meaningful progress toward eventual de-escalation, removing some of the geopolitical premium. However, the cautious "does not mean a deal is imminent" qualifier and ongoing military posturing keep residual risk in place.

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IRAN'S STRAIT OF HORMUZ GAMBIT: TEMPORARY SHUTDOWN

Just as talks began Tuesday, Iranian state media said Iran was temporarily shutting parts of the Strait of Hormuz due to "security precautions" while its elite Revolutionary Guards conducted military drills. Later, state media said the strait had been shut down for a few hours, without making it clear if it had fully reopened.

"Iran knows Trump's negotiation tactics now. It also knows that a disruption in oil exports out of the Strait of Hormuz and a rally in the oil price to $150 per barrel is the very last thing Trump wants," said SEB chief commodities analyst Bjarne Schieldrop. "Iran has time to negotiate in calmness."

This was a calculated demonstration. Iran proved it can shut the strait (which handles 20% of global oil consumption) even temporarily, establishing leverage in negotiations. The threat always surfaces when U.S.-Iran tensions flare, but Iran has resisted fully shutting it, likely because this would lead to immediate U.S. escalation. The strait would not remain shut long, potentially triggering full-scale war with unsurprising consequences for oil prices.

Iran and Russia will conduct navy drills in the Sea of Oman and northern Indian Ocean on Thursday, Fars news agency reported, just days after Revolutionary Guards drills in the Strait of Hormuz. The coordination with Russia adds another geopolitical dimension.

Eurasia Group Assessment: The political consultancy said in a Tuesday note it estimates a 65% probability of U.S. military strikes against Iran by the end of April. This is a surprisingly high probability from a serious geopolitical risk firm and suggests the "guiding principles" agreement may not be as meaningful as markets hope.

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RUSSIA-UKRAINE TALKS END WITHOUT BREAKTHROUGH

The U.S.-mediated talks between Russia and Ukraine in Geneva have ended, with Moscow describing them as "difficult, but business-like" and Kyiv calling them substantive with progress made. However, no breakthrough was achieved.

Ukrainian President Volodymyr Zelenskyy announced sanctions against Belarusian President Alexander Lukashenko over "his assistance in the killing of Ukrainians." Ukraine also reported Russian forces launched one ballistic missile and deployed 126 drones in an overnight attack, demonstrating that military operations continue unabated despite negotiations.

The Geneva talks follow two rounds of U.S.-brokered negotiations in the UAE in January and early February. Russia and Ukraine described both rounds as constructive, but they also failed to achieve any breakthrough.

Market Implication: The lack of breakthrough is bullish for oil prices as it means Russian oil sanctions remain in place longer, keeping Russian barrels constrained. We've tracked how India's 59% March collapse in Russian imports (1.43M to 593K bpd) and China hitting capacity limits have created a Russian crude crisis. A peace deal would have lifted sanctions and returned 1-1.5 million bpd of Russian crude to accessible markets at a time when the IEA projects a 3.73M bpd surplus. The talks continuing but not resolving means that bearish supply addition is delayed or potentially off the table entirely.

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ASIA CRUDE IMPORTS: RECORD FEBRUARY BUT INDIA'S RUSSIAN COLLAPSE IS REAL

Asia's crude oil imports are on track to hit a record high in February at 28.51 million bpd, the highest on a daily basis in Kpler records. This follows robust arrivals of 27.48 million bpd in December and 26.22 million bpd in January. Much of the elevated appetite comes from China and India, the world's biggest and third-largest buyers.

However, the data shows recent geopolitical disruptions are starting to influence flows.

India's Russian Crude Collapse: India provides a case in point. February imports are expected to reach 5.40 million bpd, up from 5.18 million bpd in January. But the March data shows a sharp drop in expected Russian arrivals, down to 593,000 bpd - a 59% slump from 1.43 million bpd in February and 1.22 million bpd in January.

While Kpler may revise March totals higher, any increase will likely be mild given the four-to-six-week voyage from Russia's western ports, meaning March cargoes are likely already at sea. The precipitous drop follows India's trade deal with Washington, which includes cutting Russian imports while boosting U.S. purchases.

So far India is making good on cutting Russian imports, but hasn't yet lifted U.S. purchases. Kpler estimates March U.S. imports at just 161,000 bpd, the weakest since February 2025. In fairness, it will take several months for any U.S. boost to show up given longer sailing times.

Saudi Arabia: The Big Winner: The main beneficiary of India moving away from Russia appears to be fellow OPEC+ member Saudi Arabia. February imports are expected to reach 1.03 million bpd, up from 774,000 bpd in January and the most since November 2019.

The sharp jump comes as Saudi Aramco lowers official selling prices. The March OSP for benchmark Arab Light for Asian refiners was cut to parity to Oman/Dubai average, down from a premium of 30 cents/bbl for February. This was the lowest OSP since December 2020 and continues the pattern of reducing Saudi oil costs relative to competitors.

The lower Saudi pricing is also showing up in China's imports, with Kpler expecting arrivals of 1.58 million bpd in February, up from 1.20 million bpd in January and the most since June last year. China's March imports from Saudi Arabia are expected to reach 1.87 million bpd, the most since October 2022.

China Sticks With Russia: However, China is sticking with Russia as a top supplier, with February seaborne imports expected at 2.02 million bpd, up from 1.85 million bpd in January. China's January and February imports from Russia are the highest in Kpler records going back to 2013, showing Beijing is still willing to buy sanctioned crude, with discounts enough to outweigh political concerns.

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BOTTOM LINE

Oil is stabilizing after Tuesday's 2% drop as markets digest Iran's "guiding principles" agreement against the reality check that "no deal is imminent." Iran's temporary Strait of Hormuz shutdown Tuesday was a calculated demonstration of leverage - proving it can disrupt 20% of global oil flows even while negotiating. Eurasia Group's 65% probability of U.S. military strikes by end-April is a sobering counterpoint to optimistic talk progress, suggesting the geopolitical premium may be justified.

The Asia import data provides hard evidence of the crude flow reconfiguration we've tracked. India's Russian crude plunging 59% to 593K bpd in March (from 1.43M in February) validates the trade deal impact. Saudi Arabia is the primary winner, using lowest OSPs since COVID to capture 1.03M bpd from India (most since November 2019) and 1.87M bpd from China in March (most since October 2022). China continues absorbing Russian crude at record levels (2.02M bpd in February, highest in Kpler's 13-year records), but this can't continue indefinitely with teapots at capacity and state refiners out.

Brent at $68.28 and WTI at $63.16 reflect the market's uncertainty. The "guiding principles" language suggests eventual de-escalation, but Eurasia Group's 65% strike probability and Iran's Hormuz demonstration keep risk premium in place. Russia-Ukraine talks progressing adds to the bearish supply outlook. Watch today's API data - another large crude build after last week's 8.5M barrel surprise would pressure prices despite geopolitical support. The fundamental anchors remain: IEA's 3.73M bpd surplus, Goldman's $54 Q4, EIA's $58 annual average. Once geopolitical premiums fade, the path is lower.