SINGAPORE — Oil prices crashed 4.8% in Asian trading Thursday as investors bet Pakistan's mediation push might crack open a ceasefire between Iran and Israel.

Brent crude fell to $87.12 a barrel. Steepest drop since January.

The selloff came despite fresh warnings from European energy officials that jet fuel reserves could run dry within six weeks. Markets chose optimism over arithmetic.

Why traders are gambling on peace

Pakistan's foreign minister arrived in Tehran Wednesday with what diplomats described as "concrete proposals" from both Washington and Jerusalem. The timing matters — Iran's new Supreme Leader Mojtaba Khamenei faces mounting pressure from clerics who want to end a war that has cost the regime $180 billion in lost oil revenue since fighting began 14 months ago.

"The market is pricing in maybe a 30% chance of a temporary halt," said James Morrison, energy analyst at Singapore's DBS Bank. "That's probably generous, but oil has been so elevated that any peace premium unwind hits hard."

Brent has traded above $90 for eight consecutive months. The war premium — the extra cost built into prices because of supply disruption fears — is estimated at $15-20 per barrel.

But European officials painted a grimmer picture Thursday.

Klaus Weber, head of the European Energy Security Agency, told reporters in Brussels that jet fuel stockpiles across the continent had fallen to "maybe six weeks" of normal consumption. Commercial airlines have been burning through reserves as Middle Eastern supply routes remain severed.

"We're not at crisis point yet," Weber said. "But we're walking toward it."

The peace bet

The warning barely registered in Asian markets. Investors focused instead on diplomatic signals from Islamabad, where Pakistani Prime Minister Shehbaz Sharif has positioned his country as the key broker between Tehran and Washington.

Three factors are driving the speculation:

Iran's economy is cracking. The rial has lost 60% of its value since the war began. Gasoline shortages have sparked protests in at least four cities, according to opposition groups monitoring social media.

Israel's military is stretched thin across four fronts — Gaza, Lebanon, Syria, and Iranian proxy targets across the region. Defense spending has jumped 40% above pre-war levels.

Trump wants a win. The president campaigned on ending foreign wars, and an Iran ceasefire would be his first major diplomatic achievement since taking office in January.

What could derail everything

Mojtaba Khamenei has shown no public inclination to negotiate from what Tehran considers a position of weakness. His first major speech as Supreme Leader, delivered March 15, promised "final victory" over Israeli forces.

Iran's IRGC commander Mohammad Bagher Ghalibaf, who survived the airstrikes that killed the previous Supreme Leader, remains committed to the military campaign. He controls Iran's missile arsenal and proxy networks across the region.

The nuclear issue complicates any deal. Iran has enriched uranium to 84% purity — weapons grade — at its Fordow facility, according to International Atomic Energy Agency inspectors. Israel has made clear that any ceasefire must address Iran's nuclear program.

"You can't separate the military conflict from the nuclear file," said Michael Singh, managing director at the Washington Institute for Near East Policy. "Israel won't accept a temporary pause that lets Iran consolidate its nuclear gains."

Market mechanics

Oil traders are positioning for volatility in both directions. Options activity suggests big moves are expected by month-end, when Pakistan's mediation effort is scheduled to conclude.

If talks collapse, analysts expect Brent to test $100. If they produce even a temporary ceasefire, prices could fall toward $75 — the level that prevailed before the war began in February 2025.

Asian equity markets fell Thursday despite the oil price drop. Japan's Nikkei declined 1.2%, while Hong Kong's Hang Seng dropped 0.8%. Investors worried that lower energy costs might signal broader economic weakness.

The disconnect between European fuel warnings and market optimism reflects a bet that any supply crunch would be temporary. Airlines have already reduced flight schedules by 15% compared to pre-war levels.

Further cuts could stretch existing fuel stocks.

What's next

Pakistani negotiators return to Islamabad Friday for consultations with Sharif's cabinet. A second round of shuttle diplomacy is planned for early next week, with stops in Tehran, Jerusalem, and Washington.

The timeline is tight. Iran's parliament reconvenes April 28 to vote on the next year's military budget. Khamenei needs to show progress — either diplomatic or military — before then.

Oil markets will watch for any hint of compromise. But traders betting on peace should remember: this war has survived six previous mediation attempts.

The math on jet fuel reserves doesn't care about diplomatic optimism.