Oil falls 1% ahead of US announcement to impose further sanctions on Iran

Oil prices slid below $93 per barrel on Monday, falling sharply ahead of a potential announcement of U.S. sanctions against Iran. The decline comes as investors capitalize on recent gains and brace for further supply disruptions from the Middle East. US Treasury Secretary Scott Bessent has warned of the toughest sanctions in history on Iran, while President Donald Trump has threatened sanctions against countries trading with the country.

Brent crude futures dropped $1.9, or 2%, to $92.60 a barrel, while US West Texas Intermediate crude declined $1.76, or 2%, to $85.20 a barrel. Both benchmarks had previously posted two straight weekly gains last week, rising more than 5% each, after peace talks between the U.S. and Iran reached a stalemate. This stalemate had limited oil shipments through the Strait of Hormuz, a key global oil transit route that typically carries a fifth of the world's oil supply.

Experts are divided on the potential impact of the sanctions. Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, warns that successful sanctions could increase the risk of increased violence from Iran, posing a growing threat to energy markets. On the other hand, Tony Sycamore, an IG Markets analyst, suggests that by the end of the week, market participants will likely have a clearer understanding of which side in Iran holds the upper hand – whether it be the more pragmatic members seeking de-escalation or the hardliners intent on fighting to the bitter end.

The length of the disruption will be a critical factor in determining crude prices. JPMorgan estimates that each additional month of disruption could add $7 to $8 per barrel to Brent prices. If the disruption persists for three months, the bank expects Brent prices to average around $114 per barrel. Goldman Sachs echoes this sentiment, warning that Brent could rise to $120 per barrel if shipping disruptions through the Strait of Hormuz remain prolonged.