Brent crude fell to $89.25 a barrel, slipping below the $90 mark, while US West Texas Intermediate (WTI) crude also declined over 3% to $82.20.
Both benchmarks had settled more than 2% lower on Monday, with WTI falling to a one-week low as investors took profits after a two-week rally.
The latest decline came as the market assessed the US administration’s decision to increase economic pressure on Tehran rather than immediately escalate military action.
“The shift from an escalation in military conflict to economic pressure in the US-Israeli war with Iran has reduced some of the oil market’s anxiety,” Ole Hansen, head of commodity strategy at Saxo Bank, told Reuters. He added that the sanctions announcement was not as forceful as markets had feared.
US Treasury Secretary Scott Bessent on Monday announced an expansion of sanctions aimed at cutting off Iran’s economic lifeline and called on countries to sever business ties with Tehran or risk being excluded from the dollar-based financial system.
However, Bessent did not identify the countries that could face penalties or provide a timeline for their implementation. He said countries would instead be given time to comply.
Iran has vowed to retaliate against the expanded sanctions, while signalling confidence that major trading partners would resist Washington’s pressure campaign.
US Defense Secretary Pete Hegseth said Washington would not rule out military force against Iran. However, the greater emphasis on economic coercion has reduced immediate concerns about further threats to oil supplies in the region.
Supply disruption risks remain
The easing of the immediate risk premium does not mean the oil market has become complacent about supply.
“Iran still retains the ability to respond by disrupting shipping, which continues to keep a residual premium in the oil price,” Tim Waterer, chief market analyst at KCM, told Reuters.
Shipping through the Strait of Hormuz remains a particular concern. Only two tankers carrying commodities transited the strategic waterway on Monday, the lowest daily tally since early May, according to shipping data.
Around one-fifth of global oil consumption typically passes through the Strait of Hormuz, making any sustained disruption there a significant threat to global supplies.
An oil tanker was also struck by an unidentified projectile on Tuesday and disabled about nine nautical miles (16.7 km) northeast of Oman’s Ash Shishah, the United Kingdom Maritime Trade Operations said.
The conflict has already prompted countries to draw down commercial and strategic oil reserves as governments prepare for potential supply disruptions.
Separately, a Ukrainian drone attack damaged the Novoshakhtinsk oil refinery in Russia’s southern Rostov region overnight, forcing the facility to suspend operations, the regional governor said.
For now, however, the oil market appears more focused on the absence of an immediate escalation in supply risks. The decline in crude prices suggests traders are willing to look past the latest sanctions — at least until there is clearer evidence that the conflict is disrupting physical oil flows.
(With Agency Inputs)
