Brent crude futures declined $3.59, or 3.9%, to settle at $88.58 a barrel on Tuesday, marking the lowest settlement since August 14. U.S. West Texas Intermediate crude fell $2.65, or 3.1%, to $82.36, the weakest close since August 13. The declines extended a broader retreat in oil markets, with both benchmarks settling more than 3% lower for the session.
The pullback followed the announcement of expanded U.S. sanctions against Iran by Treasury Secretary Scott Bessent on Monday, nearly six months into the conflict between the U.S., Israel, and Iran that began on February 28. The measures were framed as an economic pressure campaign, with Bessent declining to specify targeted countries or enforcement timelines, stating that compliance periods would be granted. Analysts noted that the shift from military confrontation to sanctions had tempered some of the oil market's risk premium, with Ole Hansen, head of commodity strategy at Saxo Bank, describing the U.S. announcement as "not as forceful as some traders had expected."
Shipping activity in the Strait of Hormuz, a critical chokepoint for global oil flows, remained subdued. Only two tankers transited the strait on Monday, the lowest daily tally of commodity vessels since early May, according to tracking data. The lull in traffic comes amid heightened tensions, including an incident on Tuesday where an oil tanker was struck by an unidentified projectile and disabled approximately nine nautical miles northeast of Oman's Ash Shishah, as reported by the United Kingdom Maritime Trade Operations.
Iran and Oman discussed a proposal on Tuesday for a "joint temporary navigational corridor" through the Strait of Hormuz and a plan to clear the waterway of mines, though no immediate resolution to the shipping disruptions was confirmed. Meanwhile, China, the largest buyer of Iranian oil, reiterated that its cooperation with Tehran adheres to international law and should not be obstructed.
Market participants warned that Tuesday's decline in oil prices may have overreacted to the sanctions announcement. Ritterbusch and Associates, an oil trading adviser, cautioned that the market could swing sharply higher if Iran responds with military strikes on U.S. installations in the Middle East. Tim Waterer, chief market analyst at KCM, emphasized that Iran retains the capacity to disrupt shipping, which continues to underpin a residual risk premium in oil prices despite the recent easing in geopolitical tensions.
The Strait of Hormuz historically accounts for roughly one-fifth of global oil consumption, underscoring the persistent supply risks even as current transit volumes remain historically low.
