The oil price fell to its lowest level in over two weeks on Monday, amid new hopes of a breakthrough to end the Iran war.

Brent crude, the international benchmark, dropped by more than 6.5% to as low as $105.55 a barrel, the lowest since 16 October, sending shares in airline companies higher and pushing down government borrowing costs.

Oil prices fell after Tehran revealed that contacts between Iran and the United States to end their eight-month war are continuing.

"Consultations through mediators are very ⁠intensive. We have presented our conditions and ⁠proposals and everything depends on the political ​rationality of Washington," Iranian foreign minister Abbas Araghchi said, according to state media outlet IRNA.

Over the weekend, Qatari officials tried to negotiate the release of more than $6bn in Iranian assets, so that Tehran might allow the strait of Hormuz to reopen.

Donald Trump had earlier taken a belligerent tone, telling voters in Iowa that Iran would receive "the hammer" unless there was progress.

"The only reason why I'm not finished with Iran is I want to be nice. I want to try and save all those lives if I can ... But at some point we're going to have to give them the hammer," Trump said during a campaign rally on Sunday.

But investors were cheered by reports on Monday that Iran's supreme leader, Mojtaba Khamenei, had granted "powers" to his government in its talks with the US seeking to end the Middle East war.

Chris Beauchamp, chief market analyst at investing and trading platform IG, said: "The news is manna from heaven for stock markets, which have felt increasingly pressured by oil's rise, but of course there is still a risk that Trump will try one last throw of the iron dice after the midterms."

The drop in the oil price sparked hopes of a break in the inflationary pressures gripping the global economy. Government borrowing costs dropped, with the yield – or interest rate – on 10-year UK bonds dropping 10 basis points, or 0.1 of a percentage point, to the lowest since 22 September.

Shares in British Airways' parent company, IAG, rose by 4.2% in London, while United Airlines jumped 7% in New York.