Brent crude fell nearly 2% in early trading on Monday as traders took profits following two consecutive weeks of gains, while the market positioned for a US announcement on tougher sanctions against Iran and assessed the potential implications for global oil supply.
At 3:30 a.m. (WAT), Brent crude was down 1.81% at $92.68 per barrel, while US West Texas Intermediate (WTI) declined 1.93% to $85.38. The pullback followed gains of more than 5% in both contracts last week, driven largely by stalled US-Iran peace talks and continuing disruption to crude shipments through the Strait of Hormuz.
The latest decline does not necessarily represent a reduction in geopolitical risk. Rather, it reflects profit-taking ahead of the US Treasury's expected announcement on Monday. Treasury Secretary Scott Bessent has threatened what he called the “toughest sanctions in history” against Iran, while President Donald Trump has warned that countries trading with Tehran could also face sanctions.
The potential impact on supply is significant because the Strait of Hormuz remains heavily disrupted. Tanker traffic is still well below pre-war levels and vessels continue to face attacks in the area. The waterway normally carries about one-fifth of global oil supply, making any additional restrictions on passage a direct concern for crude availability, freight costs and physical-market premiums.
Iran has condemned the planned sanctions, although President Masoud Pezeshkian has called for a diplomatic resolution. The central risk for oil traders is that intensified economic pressure could trigger a further escalation, particularly if Tehran responds by restricting energy flows or increasing pressure on shipping through the Gulf.
The disruption is already being reflected in Iranian crude trade. Trade sources said offers of Iranian crude to Chinese buyers have declined and prices have increased as US measures constrain Tehran's shipments. Iran has separately granted permission for a number of Iraqi oil tankers to pass through Hormuz after repeated requests from Baghdad, indicating that access to the waterway is being managed selectively rather than operating normally.
For oil markets, the immediate focus is therefore shifting from the size of the recent price rally to the physical consequences of the sanctions. If the measures materially reduce Iranian exports, the resulting tightening would come at a time when alternative routes and shipping capacity are already under pressure. Conversely, evidence that Iranian barrels and Hormuz traffic can continue at controlled levels could ease some of the geopolitical premium currently embedded in prices.
With the decline in oil eput the market at a critical point, with Monday's US sanctions announcement set to provide the next major test of whether crude prices resume their upward trajectory or extend the current correction.