London (AFP) - Oil prices hit one-month highs Monday before scaling back as Iran said diplomatic exchanges with the United States were ongoing via mediators to dial back renewed conflict in the Middle East.

That helped boost sentiment on Wall Street, while European equity markets largely stabilised.

However, Asian stock markets ended the day mostly lower under the weight of higher oil prices which briefly shot above $91 per barrel, alongside lingering concerns that the AI sector may be overbought.

“The Iran war has escalated and driven oil prices back above $90 a barrel,” noted Russ Mould, investment director at AJ Bell.

“That means inflation fears are back on the table.”

Crude futures have surged over the past week as Washington and Tehran traded fire, raising fears of a sustained disruption in the Strait of Hormuz, through which around one fifth of the world’s oil normally passes.

The benchmark international crude contract, Brent North Sea, rose above $91 a barrel Monday, its highest price since June 11.

But it gave up those gains after Iran indicated that diplomacy with Washington was continuing through mediators, even as it struck Gulf targets and was targeted by US strikes.

“We have received messages – without going into details – but the main point is that the diplomatic apparatus has been active in recent days and ideas have been conveyed to us by certain mediators,” Iranian foreign ministry spokesman Esmaeil Baghaei told a news conference in Tehran.

Meanwhile, Iran’s Interior Minister Eskandar Momeni was set to travel to mediator Pakistan’s capital on Monday, a Pakistani interior ministry source told AFP, without confirming the reason.

Such “reports have reset the temperature for oil prices to simmer from boiling,” said Briefing.com analyst Patrick O’Hare.

The drop in oil prices came despite Yemen’s Iran-backed Houthi rebels on Monday announcing a maritime embargo of their foe Saudi Arabia.

As part of the Gaza war, the Houthis attacked shipping in the Gulf of Aden and Red Sea, which leads to Europe via the Suez Canal, forcing ships to take lengthy detours around Africa.

If the Houthis were to do so again they could block oil exports from the Saudi Red Sea port of Yanbu to Asia.

More tech companies report earnings this week, with Google-parent Alphabet to release its quarterly figures on Wednesday, after a week where tech shares fared poorly as investors worry about whether AI investments are going to pay off and justify sky-high stock valuations.

“The buy-the-dip crowd is congregating among the semiconductor stocks,” said Briefing.com’s O’Hare.

The VanEck Semiconductor ETF, an exchange-traded fund of semiconductor stocks that is a proxy for the sector, was up 1.7 percent as in morning trading in New York after having lost nearly nine percent last week.

“The next two weeks will be a tussle between conflict news and big-name earnings, and the tug of war between these two is likely to keep volatility elevated,” said Chris Beauchamp, chief market analyst at online trading and investing platform IG.

The British pound dipped against the dollar as Andy Burnham took over as Britain’s prime minister, with the markets waiting expectantly for his pick as finance minister.

London’s blue-chip FTSE 100 shed 0.7 percent as investors faced down “a renewed oil shock, rising shipping fears around the Strait of Hormuz and uncertainty over the policy direction of Britain’s new prime minister,” said Patrick Munnelly at Tickmill.

- Key figures around 1530 GMT -

Brent North Sea Crude: UP less than 0.1 percent at $88.16 per barrel

West Texas Intermediate: DOWN 0.1 percent at $81.70 per barrel

New York – Dow: 0.2 percent at 52,045.29 points

New York – S&P 500: UP 0.4 percent at 7,484.78

New York – Nasdaq Composite: UP 0.7 percent at 25,697.02

London - FTSE 100: DOWN 0.7 percent at 10,524.76 (close)

Paris - CAC 40: FLAT at 8,340.11 (close)

Frankfurt - DAX: UP less than 0.1 percent at 24,846.69 (close)

Tokyo – Nikkei 225: Closed for a holiday

Hong Kong – Hang Seng Index: UP 2.4 percent at 25,143.05 (close)

Shanghai – Composite: UP 0.9 percent at 3,796.28 (close)

Pound/dollar: DOWN at $1.3419 from $1.3457 on Friday

Euro/pound: UP at 85.06 from 85.00 pence

Euro/dollar: DOWN at $1.1409 from $1.1439

Dollar/yen: UP at 162.57 yen from 162.44 yen