Oil prices fell by more than 1% in early trading on Monday, as investors took profits after two weeks of gains, ahead of an expected US announcement of increased economic pressure on Iran that could raise risks surrounding Middle East supplies.
Brent crude futures fell 1.29% to $93.17 a barrel by 00:35 GMT, while U.S. West Texas Intermediate crude futures dropped 1.38% to $85.86.
Both crude oil benchmarks posted weekly gains for the second time in a row last week, by more than 5%, amid continued stalled talks between the United States and Iran, and disruption to oil shipping through the Strait of Hormuz, through which about one-fifth of the world’s oil and gas supplies passed before the outbreak of the war.
Investors are awaiting a press conference by US Treasury Secretary Scott Bisent at 2 p.m. Eastern Time (18:00 GMT), after he pledged to reveal details of a campaign aimed at further isolating Iran economically.
Bisent described the campaign as an economic landing aimed at cutting off Tehran’s remaining financial and commercial arteries, and wrote in an opinion piece published in the Financial Times that Washington would target those who buy or transport Iranian oil, along with money exchange networks, banks, shipping companies and intermediaries who help Iran obtain and transfer its revenues.
US President Donald Trump also threatened to impose enormous economic consequences on countries, companies and institutions that continue to provide a lifeline to the Iranian economy.
The risk of escalation is supporting oil.
Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, said the extent to which US policy will succeed in isolating Iran economically remains unclear.
He wrote in a memo that the success of US actions in achieving their objectives could make an Iranian response of more violence an increasing risk that energy markets should take into account.
The possibility of an Iranian response is one of the biggest sources of concern in the oil market, as analysts warn that tightening the economic noose around Tehran could push it to escalate militarily in the Gulf or increase pressure on navigation in the Strait of Hormuz, in an attempt to raise energy prices and increase the cost of war for the United States and its allies.
Tehran condemned Washington's plans to tighten sanctions, while Iranian President Masoud Pezeshkian called for a diplomatic solution to the conflict.
Reuters quoted Tony Sycamore, a market analyst at IG, as saying that the more pragmatic members of the Iranian leadership favor de-escalation, while hardliners might prefer to continue fighting. He added that the end of this week could provide a clearer indication of which faction holds sway within the Iranian leadership.
Iran's shipments under pressure
The US moves come at a time of increasing pressure on Iranian crude exports. The amount of Iranian oil available to Chinese buyers has dwindled and prices have risen after US sanctions reduced shipments, according to trade sources.
China represents the biggest test for the new US campaign, as it accounts for more than 90% of Iranian crude exports. Washington has already imposed sanctions on independent Chinese refineries and companies involved in oil trading with Tehran, but has so far avoided targeting the major Chinese banks that finance these purchases.
Iranian Central Bank Governor Abdolnaser Hemmati said in recent days that Iranian oil exports have effectively stopped due to the US embargo, threatening the country's most important sources of foreign currency and government revenue.
However, there are signs that some movement through the Strait of Hormuz continues, as some ships carrying Iraqi oil are receiving passage through the Strait of Hormuz, according to statements by the country's president, Nizar Amidi, following repeated requests from Baghdad.
Shipping through the Strait of Hormuz remains a key factor influencing crude oil prices, as the standoff between Washington and Tehran continues and no breakthrough appears in talks aimed at ending the war.
In this context, shipping data showed that fewer than 20 cargo ships transited the Strait of Hormuz earlier this week. Kpler data indicated that four ships passed through the strait on Sunday, following 13 on Saturday. These figures may change later, as some ships disable their transponders while transiting the strait.
