Oil rises as Trump threatens sanctions on Iran partners

Oil prices surged on Friday (Aug 21) as US President Donald Trump threatened economic sanctions on Iran’s trading partners, sparking concerns over reduced supply in the coming weeks. International Brent crude futures rose to US$94.39 a barrel, while US West Texas Intermediate (WTI) crude reached US$87.06 a barrel. Over the past week, Brent has gained 6.4 per cent, and WTI has climbed 5.7 per cent, hitting their highest levels since early July.

John Kilduff, a partner at Again Capital, commented that "sanctions have been the only thing to bring Iran to heel." Iran vowed retaliation would be "devastating" if new US threats materialize, following Washington’s pledge to impose the toughest financial penalties in history aimed at toppling Iranian leadership.

Crispus Nyaga, a research analyst at Empire FX, said the immediate impact on supply might be limited as Iran's exports are already heavily constrained by the US naval blockade. Nonetheless, shipping incidents and retaliation against economic sanctions could further exacerbate the situation as the Strait of Hormuz's traffic remains well below normal levels.

Phil Flynn, a senior analyst at Price Futures Group, noted that while Hormuz remains a concern, it is no longer the sole issue. Pipelines, shuttles, US shale, a recovering Venezuela, and an unconstrained United Arab Emirates are offering alternative supplies to counteract the current constraints in the Strait of Hormuz.

Oil prices have been on the rise due to worries about limited supply from key oil producers like Saudi Arabia, Iraq, UAE, and Kuwait. The previous peace deal between the US and Iran expired on Friday with no effort made by either side to restart talks. Iranian crude offers to Chinese buyers have dwindled, and prices have surged this week as the US blockade reduces Iran's shipments, according to trade sources.

The threat of additional sanctions from Washington is looming, with seven commodity ships sailing through the Strait of Hormuz on Thursday, only half the previous day's count. Before the US-Israeli attacks on Iran began in late February, the Strait of Hormuz facilitated about a fifth of global oil and liquefied natural gas supplies. As the conflict approaches its six-month anniversary, disruptions to energy flows through the waterway persist.