Oil prices fell further on Tuesday, extending losses from the previous session, as investors brushed off the impact of new U.S. sanctions targeting Iran. Brent crude futures fell 90 cents, or 1.0%, to $91.27 a barrel by 0630 GMT, while U.S. West Texas Intermediate (WTI) crude dropped 76 cents, or 0.9%, to $84.25 a barrel. Both major contracts had settled down more than 2% in the prior session, with U.S. crude hitting a one-week low following profit-taking after a two-week rally. According to Marketscreener, traders treated the American effort to deter partners from Iranian trade as marginal rather than market-moving.
Market Reaction to U.S. Sanctions on Iran
The downward movement came after U.S. Treasury Secretary Scott Bessent unveiled an expanded sanctions package designed to cut off Iran’s economic lifeline and force an end to the ongoing conflict. Bessent warned that nations must sever their business ties with Tehran or face the risk of being excluded from the dollar-based financial system. However, he declined to specify which countries would be targeted or when the penalties would take effect, stating that nations would be given time to comply with the directive.
Assessing Economic Pressure Versus Military Conflict
While U.S. Defense Secretary Pete Hegseth stated that Washington would not rule out using military force against Iran, the shift toward economic coercion altered market calculations regarding physical oil supplies.
Markets appear to be pricing economic pressure as a lower-risk path for physical supply than kinetic action, which is why the initial reaction was for oil to move lower rather than spike higher,
said Tim Waterer, chief market analyst at KCM, as reported by cnbc.com.
Complementing the Treasury’s broader warnings, the Office of Foreign Assets Control sanctioned roughly 60 entities linked to Iran’s oil-revenue operations, including vessels from the country’s shadow fleet used for petroleum transport. In response, Iran’s Economy Minister Seyed Ali Madanizadeh told state television that the nation was fully prepared for the measures, while domestic citizens faced worsening fuel shortages and longer queues at petrol stations.
Persistent Shipping Threats and Strategic Reserves
Despite the market’s initial focus on economic levers rather than military escalation, ongoing regional security threats continued to maintain a residual premium on oil prices. Waterer noted that Iran still retains the capability to respond by disrupting shipping in vital waterways.
Underscoring those risks, an oil tanker was struck by an unidentified projectile on Tuesday, leaving the vessel disabled about 9 nautical miles northeast of Oman’s Ash Shishah, according to the United Kingdom Maritime Trade Operations. Meanwhile, Iran maintained its position that it should control the strategic Strait of Hormuz—a waterway that prior to the conflict typically carried cargo equivalent to roughly 20% of global oil consumption. Tehran named 45 tankers that allegedly violated its rules on crossing the strait, threatening actions that included the confiscation of their cargoes.
The broader supply disruptions stemming from the U.S.-Israeli war on Iran, which began on February 28, have forced nations to draw down their commercial and strategic stockpiles. Data from the Department of Energy showed that crude oil inventories in the U.S. Strategic Petroleum Reserve fell by approximately 3.7 million barrels last week down to 289.7 million barrels, marking the lowest level recorded since November 1982.
