Oil falls ahead of US announcement on new Iran sanctions

Oil prices tumbled over $1 per barrel on Monday as traders cashed in ahead of a likely US announcement of fresh sanctions on Iran, which could further impede supplies from the Gulf region. Brent crude futures dropped $1.22, or 1.29%, to $93.17 per barrel, while US West Texas Intermediate crude fell $1.20, or 1.38%, to $85.86 per barrel.

Both contracts had gained more than 5% in the previous week, as talks between Washington and Tehran remained stuck, restricting oil shipments through the Strait of Hormuz, through which one-fifth of global oil supplies usually travel.

Treasury Secretary Steven Mnuchin, scheduled to deliver a press conference at 2 p.m. EDT (1800 GMT) on Monday, has hinted at "the toughest sanctions in history" against Iran. President Donald Trump has also threatened to penalize Iran's trading partners. Analysts are divided on the effectiveness of the US strategy of economically isolating Iran.

Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, cautioned that while the policy may yield results, Iran's response might escalate, posing a threat to energy markets.

Iran has vehemently opposed the prospect of new sanctions, while President Masoud Pezeshkian called for a diplomatic resolution. IG Markets analyst Tony Sycamore noted that Iran's hardliners might prefer a prolonged conflict, whereas the more pragmatic elements would seek de-escalation. By the end of the week, it should become clearer which faction within the Iranian leadership holds the upper hand.

The U.S. could face retaliatory tariffs from other nations, warned China's Global Times. Iranian crude offered to Chinese buyers has dwindled, and prices have surged, as the U.S. embargo has curtailed Tehran's shipments. Nonetheless, Iran has granted permission to several Iraqi oil tankers to transit through the Strait, following repeated appeals from Baghdad, according to Iran's state news agency IRNA.