Oil prices experienced fluctuations as investors assessed the implications of expanded U.S. sanctions against Iran. Brent crude futures were down $0.09, or 0.1%, at $92.16 a barrel, while U.S. West Texas Intermediate (WTI) crude was up $0.01 at $85.02 a barrel in early trading on Tuesday. Both contracts had fallen more than 2% on Monday, with U.S. crude hitting a one-week low due to profit-taking after a two-week rally. The market's initial reaction, a dip in prices, suggested that economic pressure was perceived as a lower-risk path for physical supply compared to kinetic action, as noted by Tim Waterer, chief market analyst at KCM.
U.S. Treasury Secretary Scott Bessent announced an expansion of sanctions on Monday, aiming to cut off Iran's economic lifeline and compel an end to the ongoing war. Bessent warned countries to sever business ties with Iran or risk being excluded from the dollar-based financial system. While U.S. Defense Secretary Pete Hegseth stated that military force against Iran was not ruled out, the U.S. is increasingly relying on economic coercion. Analysts suggested this approach eased concerns about immediate threats to Middle Eastern oil supply, explaining the initial downward movement in oil prices.
However, concerns about potential supply disruptions persist due to Iran's ability to interfere with shipping. Iran continues to assert control over the Strait of Hormuz, a critical waterway that typically carried about 20% of global oil use before the war. On Monday, Iran identified 45 tankers that had violated its rules for crossing the strait and threatened action, including cargo confiscation. This stance adds a "residual premium" to oil prices, according to Tim Waterer, due to the lingering risk of shipping disruptions.
The U.S. Department of Energy also reported a drawdown in the Strategic Petroleum Reserve, with stocks falling by approximately 3.7 million barrels to 289.7 million barrels last week, reaching the lowest level since November 1982. This occurred as the U.S. and Israeli war on Iran, which began in February, has led to supply disruptions. The war has significantly affected shipping in the region, reduced oil flow, and impacted global economies. Despite the expanded sanctions, ING commodity strategists noted that the market appeared largely unfazed by Washington's push for tighter economic pressure, treating the U.S. effort to discourage trade with Iran as marginal rather than market-moving.
