Crude oil prices slide 4% as markets look past Iran sanctions

Oil prices fell sharply on Tuesday as traders took a more measured view of the latest US sanctions on Iran, betting that the move could put greater pressure on Tehran without immediately threatening crude supplies.

Brent crude fell 4.2% to $88.34 a barrel, while US West Texas Intermediate crude dropped 3.9% to $81.67. Both benchmarks touched their lowest levels since August 17.

The selloff came a day after US Treasury Secretary Scott Bessent announced expanded sanctions against Iran. But the measures appeared less aggressive than some traders had feared. Bessent did not identify the countries that would face penalties or specify when they would take effect, saying they would be given time to comply.


For live updates on US Markets, click here

That has shifted some attention away from the risk of a wider military escalation and towards the possibility of renewed negotiations between Washington and Tehran.

The change in sentiment has taken some of the heat out of the oil market after months of heightened concern over supply disruptions. The conflict had raised fears that Iran could target energy infrastructure or disrupt shipping through the Strait of Hormuz, a key route for global oil supplies.

Saxo Bank's head of commodity strategy Ole Hansen said the sanctions announcement was not as forceful as expected, helping reduce some of the market's anxiety.

Still, the sharp decline in prices may have gone too far, according to Ritterbusch and Associates. The advisory firm described the move as an overreaction and warned that crude could quickly reverse course if Iran responds to the sanctions with military strikes against US targets in the Middle East.

Iran has already vowed to retaliate and said it expects major trading partners to resist Washington's pressure campaign.

The risk to shipping remains particularly important for oil traders.

An oil tanker was struck by an unidentified projectile and disabled near Oman on Tuesday, according to the United Kingdom Maritime Trade Operations. The incident came as shipping activity through the Strait of Hormuz remained unusually low.

Only two commodity vessels transited the strait on Monday, the lowest daily number since early May, with both travelling into the Gulf, according to shipping data.

That matters because roughly one-fifth of global oil consumption typically passes through the waterway. Any sustained disruption could quickly tighten the physical oil market and put upward pressure on prices.

Tim Waterer, chief market analyst at KCM, said Iran still has the ability to disrupt shipping, meaning a residual risk premium remains embedded in crude prices.

Supply concerns are not limited to the Middle East. In Russia, the Novoshakhtinsk oil refinery in the southern Rostov region was damaged by a Ukrainian drone overnight and suspended operations, while a fire broke out at the Atyrau refinery in Kazakhstan.

For now, however, traders appear more focused on the possibility that economic pressure could eventually lead to negotiations rather than a fresh military escalation.

That has given oil some breathing room, but the sharp price drop comes with a warning: any retaliation from Iran or further disruption around the Strait of Hormuz could quickly put supply fears back at the centre of the market.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)