Oil prices continued to decline as the United States escalated economic pressure on Iran and its trading partners, in an attempt to force it to resume energy flows through the Strait of Hormuz.
Brent crude traded near $92 a barrel after falling more than 2% in the previous session, while West Texas Intermediate crude was around $85.
U.S. Treasury Secretary Scott Bisent said on Monday, as part of what he called an economic landing campaign, that countries would face a set timetable for cutting ties with Iran, or facing unilateral sanctions.
While the Office of Foreign Assets Control imposed sanctions on some 60 entities, including Tehran’s oil revenue-generating networks and shadow fleet vessels that transport its oil products, Bessent had raised expectations regarding the latest measures, even comparing them to the Normandy landings that helped end World War II.
Oil prices fell shortly after the announcement, as the threat of more severe secondary sanctions did not materialize.
Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP, told Bloomberg: “There was a lot of build-up to the announcement, but what we got was more of a warning about the direction policy is taking, rather than an immediate shock to actual supplies.”
He added: Until secondary sanctions start to change who can buy, ship, or even finance Iranian crude, I don't think traders have much reason to add another geopolitical premium.
Crude oil has risen by more than 50% this year, as the war, now in its sixth month, continues to disrupt shipments of crude oil and refined fuels from the Middle East.
It is unclear whether the American plan will loosen Tehran’s grip on the vital Hormuz waterway, or risk a backlash by putting America on a collision course with China, which buys the bulk of Iran’s oil.
Sanctions put pressure on Iran
While sanctions have damaged Iran's economy, the country is fully prepared for Washington's new economic campaign, Economy Minister Ali Madanizadeh told state television. Iran is facing increasing fuel shortages and longer lines at gas stations.
In the current situation, threats to energy flows remain high, with the British Navy reporting that an oil tanker was hit and disabled by a projectile off Oman, in the Strait of Hormuz.
The conflict allowed traders and ship owners to achieve wide margins by buying crude oil within the Arabian Gulf at a discount to global benchmark prices.
Total Energies buys oil within the Gulf at a price between $50 and $60 a barrel, while the additional shipping cost through the strait on board a supertanker is about $10 a barrel, according to CEO Patrick Pouyanné.
Latest oil price movements
Brent crude futures for October settlement fell 0.1% to $92.04 a barrel by 6:23 a.m. in London.
West Texas Intermediate crude futures for October delivery also fell by the same percentage to trade at $84.96 a barrel.
