Source: Sharecast
The pan-regional Stoxx 600 index rose 0.5% to 645 at 1057 GMT with all major bourses following suit.
Iranian officials were quoted by the Kyodo news agency as saying Tehran could reopen the vital waterway if US blockades on ports were lifted.
The proposal, delivered through mediators ahead of the United Nations General Assembly, seeks a return to diplomacy and a path toward ending hostilities, with officials stressing the move has been approved by Supreme Leader Mojtaba Khamenei and the national security council.
"There is a possibility of moving toward an agreement," an Iranian official said, while adding that Washington must demonstrate "seriousness and commitment" if diplomacy is to advance.
Brent crude fell 2.35% to $97.98 a barrel, while US benchmark West Texas Intermediate was down 2.88% to $89.71. The news sent shares in oil majors lower, with Equinor, Var Energi and Galp among the losers.
Oil had risen in morning trade after US Treasury Secretary Scott Bessent warned that all Iranian airlines will be shut down globally from 23 September, saying airports, fuel suppliers and ticketing firms risk being cut off from the dollar system if they continue servicing the carriers.
Bessent said the move forms part of Washington’s widening sanctions campaign, targeting not only Iran’s aviation sector but also foreign intermediaries and banks accused of supporting the regime, with several countries — including Iraq and Georgia — already preparing to bar Iranian flights.
All eyes will be on world leaders gathering at the UN and whether increasingly unpopular US President Donald Trump will meet his Iranian counterpart, Masoud Pezeshkian.
"Pressured by its exports grinding to a halt the economic toll is being felt in Tehran and it seems to be pinning hopes on this offer ending the stalemate," said Saxo Markets analyst Neil Wilson.
"This looks too good an offer for Trump to turn down ahead of his key week with (China President) Xi and with polls indicating voter dissatisfaction of his handling the Iran war and economy ahead of the mid-terms, which are looking like the Democrats could take both houses."
"As ever with US-Iran chatter and rumours this needs to be taken with a grain of salt but should it hold it’s going to mean crude holds lower, which would take the pressure off bond yields."
In equity news, shares in Kingfisher jumped as the European DIY retailer lifted full year guidance after posting a jump in half-year profits.
Smiths Group gained after the UK engineering firm beat full-year operating profit estimates and launched a process to sell its US asbestos liability.
Swedish telecom equipment maker Ericsson fell after Morgan Stanley downgraded to 'underweight' from 'equal-weight.
Reporting by Frank Prenesti for Sharecast.com