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US Oil Update: Futures Drop After US Rolls Out New Sanctions Campaign Against Iran

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Crude futures retreated in midday trading on Monday after the US launched a fresh sanctions campaign against Iran, aimed at severing the country's global financial lifelines.

Front-month West Texas Intermediate crude dropped by 2.5% to $84.88 per barrel, while Brent futures slipped 2.6% to $91.97/bbl.

US Treasury Secretary Scott Bessent on Monday unveiled what he described as an "unprecedented" Washington campaign to sever Tehran from the global economy, warning that any state doing business with the country risks facing US sanctions.

"... we are launching an economic onslaught against Iran's financial connections around the globe. Our objective is to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone," Secretary Bessent said.

Bessent said the campaign targets five sectors that Treasury identified as vital to Iran's economy: digital assets, technology, gold, aviation and shipping.

Treasury's Office of Foreign Assets Control is also sanctioning 60 entities, individuals and vessels worldwide over Iran's procurement of nuclear and missile technology, cyber operations and oil revenue.

Iran has condemned US plans to announce new sanctions and vowed to retaliate against any country that supports Washington, as President Masoud Pezeshkian has called for a diplomatic solution.

On Monday, Iran's Islamic Revolutionary Guards Corps spokesman warned the US of heavy strategic blows to its energy bottlenecks and vital interests.

"Today, America has well understood that if it implements its threats against Iran's infrastructure, it will face heavy strategic blows to its energy bottlenecks and vital interests," IRGC spokesperson Hossein Mohebbi said, according to the state-owned Islamic Republic of Iran Broadcasting.

Mohebbi said targeting or threatening individuals would not disrupt Iran's administration because the country's political system rests on strong ties between the government and its people.

On Monday, Pakistan Army Chief Asim Munir visited Iran to promote regional peace and stability amid heightened tensions rise between the US and Iran.

Omani Foreign Minister Sayyid Badr Albusaidi is reportedly set to visit Iran on Tuesday for bilateral talks with Iranian Foreign Minister Abbas Araghchi.

Meanwhile, Iran's Persian Gulf Strait Authority said on Sunday it had blacklisted 45 tankers for violating its transit rules in the Hormuz, noting that the vessels could face penalties, including "fines, seizure, or confiscation" during future passages.

Saxo Bank strategists said that the US sanctions on Iran could further tighten global oil supplies, with Iranian exports already disrupted and offers to China reduced.

Analysts said Iran dismissed the threat, saying it can withstand sanctions and maintain trade elsewhere, while tensions in the Strait of Hormuz remain high and traffic is still below normal.

Commercial vessel traffic through the Hormuz and Bab el-Mandeb remained resilient last week, the latest data from Kpler showing 121 crossings, a 2.5% increase from 118 the previous week, while Bab el-Mandeb reported 269 crossings, up 3.1%.

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Weekly Crude Gains Nearly 6% as Hormuz Disruptions, US-Iran Tensions Lift Prices

Crude benchmarks logged a second consecutive weekly gain, driven by the collapse of US-Iran diplomatic talks, severe disruptions in the Strait of Hormuz, and potential new US economic sanctions on Iran.West Texas Intermediate settled at $86.64 per barrel, up from $82.40/bbl the previous week, while Brent closed at $93.70/bbl, up from $88.73/bbl a week earlier.Both benchmarks gained almost 6% over the week.The rally was primarily fueled by geopolitical tensions, stalled diplomatic efforts between Washington and Tehran, and persistent disruptions to regional energy flows, market analysts said."The lack of a solution in the Middle East continues to raise oil prices, which have now risen for several days in a row," Pia Fromlet, an economist at SEB Research, said in a Friday note.The week began under heavy pressure as the interim 60-day peace framework set out under the Islamabad Memorandum of Understanding expired without a permanent peace agreement or an extension.Following this, tensions escalated sharply when the UAE halted all trade and financial transactions with Iran, accusing Tehran of launching ballistic missiles at its territory, an allegation denied by Iranian officials.Ship-tracking data show that commercial vessel traffic through the critical Strait of Hormuz remained heavily constrained due to ongoing security risks and attacks, with confirmed daily crossings plunging to multi-month lows and Middle East refinery runs remaining severely depressed.Throughout the week, market sentiment was heavily driven by escalating political rhetoric and policy moves.President Trump threatened sweeping "economic warfare" against Iran, vowing severe secondary consequences for any nation or entity offering Tehran an economic lifeline.Echoing this stance, US Treasury Secretary Scott Bessent announced plans for a tough new sanctions package, further intensifying pressure on Iran's economy.Bessent said he would disclose details on the new measures on Monday."The US administration is expected to provide details on Monday about how it intends to further isolate Iran's economy, with traders concerned that tougher measures could trigger significant blowback from China, a key trading partner and buyer of Iranian oil," Saxo Bank analysts said.The potential for a Chinese response adds another layer of uncertainty to an already tight market, keeping attention focused on the broader risks to regional energy supplies."The measures are expected to target Tehran directly, while potentially extending to countries that continue doing business with Iran, including China," analysts at Aegis Hedging said in a Friday note.Aegis cited Rystad Energy's forecasts that Chinese crude purchases could increase by up to 1.2 million barrels per day from Q3 through year-end 2026 after the world's largest crude importer reduced purchases and refinery runs in response to the Middle East-driven price spike."With the Middle East crisis showing few signs of easing, the risk of further disruption to regional energy flows continues to support crude and refined product prices," Saxo Bank analysts noted.Despite Washington's claims that the Strait of Hormuz is open, vessel transit volumes remain severely limited, and recent attacks on infrastructure in Saudi Arabia and commercial vessels have kept a hefty geopolitical risk premium priced into the market."Washington's harder economic stance toward Iran and the lack of progress toward reopening the Strait of Hormuz continue to keep a substantial supply premium in the market," Gelber & Associates said.On the supply side, the Energy Information Administration reported a 4.4-million-barrel build in US commercial crude inventories for the week ended Aug. 14, bringing stocks in line with the five-year average.The build is above Macquarie's estimate of a 3.9-mmbbl inventory rise for the week ended Aug. 14."The commercial stock build was driven by higher domestic supply despite strong export demand and lower imports," ING analysts noted.The US oil rig count decreased by three, from 455 the previous week to 452, in the week ending Aug. 21, according to data from Baker Hughes (BKR) released Friday. 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US Natural Gas Prices Rise for 2nd Straight Week Amid Robust Weather-Related Momentum

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