Oil prices slipped more than $1 a barrel on Monday as investors locked in some of last week’s gains ahead of an expected US announcement on tougher sanctions against Iran, raising fresh concerns about the outlook for Middle Eastern supplies, according to a report by Reuters.
Brent crude fell $1.23, or 1.3%, to $93.16 a barrel by 0329 GMT, while West Texas Intermediate dropped $1.36, or 1.6%, to $85.70.
Both benchmarks had gained more than 5% last week, marking their second consecutive weekly advance, as a breakdown in US-Iran diplomatic efforts increased the risk of prolonged disruption to oil flows through the Strait of Hormuz.
The waterway has historically handled roughly a fifth of global oil supplies, making any further escalation between Washington and Tehran a potential source of renewed volatility for energy markets.
US Treasury Secretary Scott Bessent is due to outline the administration’s next steps at a press conference on Monday, after warning that Washington was preparing what he described as its toughest sanctions yet against Iran. President Donald Trump has also threatened measures targeting countries and companies that continue to trade with Tehran.
The prospect of tighter sanctions is creating a difficult balancing act for oil markets. While restrictions could further reduce Iranian exports, they could also increase the risk of retaliation and additional disruption across the region.
Iran has rejected the planned sanctions, although President Masoud Pezeshkian has continued to call for a diplomatic resolution. The split between more pragmatic elements of the Iranian leadership and hardliners could become increasingly important for markets as the confrontation develops.
IG Markets analyst Tony Sycamore said the balance of power within Tehran could become clearer by the end of the week, with more pragmatic figures favouring de-escalation while hardliners may push for continued confrontation.
Meanwhile, the impact of restrictions on Iranian exports is already becoming apparent. Offers of Iranian crude to Chinese buyers have fallen, while prices have risen as US measures have constrained shipments, according to trading sources.
Iran has nevertheless allowed several Iraqi oil tankers to transit the Strait of Hormuz following requests from Baghdad, according to Iranian state media.
Supply concerns are also extending beyond Iranian exports. Morgan Stanley analysts said oil held on tankers had fallen sharply in recent weeks, while inventories onshore, including in China, were also declining.
The bank said Middle Eastern exports had fallen back towards levels seen in March and April, prompting it to push back expectations for a recovery in regional supply.
For hedge funds and other energy investors, the combination of tightening physical markets, geopolitical risk and potentially more aggressive US sanctions leaves crude prices exposed to further swings as markets assess whether the latest escalation results in a sustained loss of supply or ultimately pushes Washington and Tehran back towards negotiations
