Oil fell more than 3% on Tuesday after the U.S. pivoted toward economic sanctions on Iran rather than military strikes, and the State Department moved to return evacuated diplomats to the Middle East. Iran said it is prepared to withstand more sanctions, while China said it would safeguard its own interests.
Oil dropped as signs pointed away from renewed warfare in the Middle East. Brent futures fell 3.2% to $89.20 a barrel. U.S. West Texas Intermediate crude was down 3.3% at $82.21 a barrel.
The State Department is preparing to return evacuated U.S. diplomats to the Middle East as early as this week, according to The New York Times. The return of diplomats to their posts would suggest Washington is not anticipating a return to all-out war.
Prices have fallen more than 5% this week, after the U.S. government unveiled a fresh round of sanctions on Iran and on so-called "enablers" that continue to trade with the Islamic Republic. The White House has labeled the effort an economic D-Day.
Military option stays on the table
But the shift toward sanctions does not rule out force. U.S. Defense Secretary Pete Hegseth told reporters on Monday that further American strikes in the region remained possible: "If we need to use kinetic strikes, we'll use them."
Tehran and Beijing push back
China, one of Iran's largest trading partners, could face ramifications under the new sanctions plan for continuing to buy Iranian oil. Chinese Foreign Ministry Spokesperson Lin Jian told reporters Beijing would do everything necessary to safeguard its rights and interests, adding that Beijing's cooperation with Iran follows international law.
BBH strategists said in a Tuesday note that the latest U.S. tactics were more of a warning shot than a decisive blow, noting that Washington stopped short of immediate secondary sanctions against other countries that sustain Iran's trade. China buys roughly 90% of Iran's oil exports, they said, making it the biggest constraint on the sanctions' credibility.
Source: CNBC
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