Oil prices pulled back Monday even as Washington prepared to unveil sweeping new sanctions on Iran, dubbed "economic D-Day," after the 60-day window for peace talks between the U.S. and Iran officially closed. A source told Reuters the measures would broaden secondary sanctions on countries and firms still dealing with Tehran, while Iran threatened to halt all oil exports through the Strait of Hormuz in response.
Oil falls despite the standoff
West Texas Intermediate crude for October delivery fell 2.3% to around $85.07 a barrel on Monday, while Brent crude slipped nearly 2% to about $90.45 a barrel.
David Morrison, senior market analyst at Trade Nation, said slowing global demand growth is still outweighing geopolitical risk in the crude oil market. He added that strategic reserves have been drawn on heavily to offset the drop in tankers transiting the Strait of Hormuz.
Washington's economic D-Day
The pullback in prices came as the 60-day negotiation period between the U.S. and Iran officially ended, and Washington shifted to what it called a total enforcement posture. U.S. Energy Secretary Chris Wright said the naval blockade in the Gulf of Oman had brought Iranian crude exports to a near-total halt, with U.S. forces having intercepted, redirected, or boarded dozens of commercial vessels trying to run the blockade.
Bessent wrote in the Financial Times that Monday would mark "an economic D-Day — the single greatest financial offensive ever marshalled against an adversary." A source told Reuters the U.S. was set to warn countries to cut ties with Iran or risk being cut off from the dollar-based financial system, with the enforcement expected to broaden secondary sanctions on entities and countries maintaining economic ties with Tehran.
Iran threatens to halt exports entirely
Mohsen Rezaei, secretary of Iran's Supreme National Security Council, said Sunday that Iran would halt all oil exports through the Strait of Hormuz and the Persian Gulf if U.S. economic pressure continues. He warned that any country's participation in the sanctions would be treated as an act of war against the Iranian people. Iran has separately listed 45 ships it says violated its rules in the Strait and threatened retaliation for any ship-to-ship transfers involving them.
China is the swing factor
Stephen Innes, managing partner at SPI Asset Management, said that if Washington goes after Chinese refiners or financial institutions with credible secondary sanctions, the conflict stops looking like a narrow Iran operation and starts looking like another front in the U.S.-China economic war. China has for years been the biggest buyer of Iranian oil, and a sharp decrease in its purchases has been pivotal to keeping prices lower since the conflict began. Innes said a sanctions package with genuine teeth should give crude and the dollar an initial geopolitical bid, but that may only be the first lap of the race.
Sources: Oilprice.com, MarketWatch, Investing.com
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