On Monday, international oil prices retreated by more than $1 per barrel from recent highs as investors locked in profits ahead of expected announcements from Washington regarding new sanctions on Iran.
As of 03:29 GMT, Brent crude futures fell by $1.23, or 1.3%, to $93.16 per barrel; U.S. West Texas Intermediate (WTI) crude futures fell by $1.36, or 1.6%, to $85.70 per barrel.
The previous week saw both benchmark crude contracts post gains of over 5% for the second consecutive week. This rally was driven by the ongoing impasse in U.S.-Iran peace talks, which has led to continued constraints on oil shipments through the Strait of Hormuz—a vital chokepoint for roughly one-fifth of the world's oil supply.
U.S. Threatens 'Most Severe Sanctions Ever,' Internal Iranian Power Struggles Heighten Uncertainty
U.S. Treasury Secretary Scott Bessent is scheduled to hold a press conference at 2 p.m. Eastern Time on Monday, having publicly threatened to impose the "most severe sanctions in history" on Iran. Concurrently, U.S. President Donald Trump warned of secondary sanctions on Iran's trading partners.
Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, noted in a report: "The effectiveness of the U.S. strategy to economically isolate Iran remains uncertain. However, if this strategy proves effective as intended, Iran's potential response through escalating violent conflict will become an ongoing upside risk that the energy market must continually assess."
Iran has publicly condemned the planned U.S. sanctions, but internal divisions exist within the top leadership regarding the appropriate response. President Masoud Pezeshkian has called for resolving the issue through diplomacy, while hardliners favor a more confrontational approach.
Tony Sycamore, a market analyst at IG, stated: "The more pragmatic factions within the Iranian leadership seem inclined towards de-escalation, but hardliners may prefer to fight it out. By the end of this week, we should have a clearer picture of which side is gaining the upper hand."
Supply Tightens Further, Iranian Crude Discounts Widen
The impact of reduced Iranian crude supply due to the U.S. blockade is becoming evident on the demand side. According to trade sources, offers of Iranian crude to Chinese buyers have shown signs of widening discounts, reflecting the transmission of supply tightness into the price structure.
Furthermore, as reported by Iran's state news agency IRNA on Saturday, Iran has authorized several Iraqi oil tankers to pass through the Strait of Hormuz following repeated requests from Baghdad. This localized signal of eased tensions has somewhat alleviated extreme market fears of a complete Strait blockade, though the overall situation remains highly tense.
Fundamentals: Falling Inventories Confirm Supply Tightness
Some analysts believe that the protracted U.S.-Iran conflict will prolong the timeline for supply recovery in the Middle East beyond previous expectations.
Morgan Stanley analysts noted in their latest report: "Crude oil supply is tightening. In recent weeks, we have seen the largest drawdown in floating storage, concurrently, onshore inventories (including those in China) have also been declining. Supply reductions are the primary driver of this situation, particularly from the Middle East—multiple data sources indicate that the region's total exports have retreated to levels seen in March-April."
This trend has prompted Morgan Stanley to lower its expectations for a swift recovery in Middle Eastern supply.
Meanwhile, China's Global Times issued a warning that the U.S. will face "high tariffs" from other countries in retaliation, hinting that further escalation in global trade frictions could introduce new variables into the energy market.
Summary
Oil prices paused for a breather after two weeks of strong gains, with investors taking profits ahead of the new Iran sanctions announcement. However, fundamental signals still point to supply tightness: synchronized declines in floating and onshore inventories, Middle Eastern exports falling to multi-month lows, and widening discounts for Iranian crude. The core market contradiction lies in the outcome of the power struggle between pragmatists and hardliners within Iran—if the diplomatic route gains the upper hand, oil prices face short-term downside pressure; if confrontation escalates, supply risks related to the Strait of Hormuz will further boost geopolitical premiums. The specifics of Secretary Bessent's press conference will serve as a key catalyst for oil price movement this week.
