Oil falls ahead of US announcement on new Iran sanctions

Oil prices declined over US$1 per barrel on Monday, as traders reaped profits ahead of a potential US announcement regarding new sanctions on Iran, which could further strain Middle East supplies. Brent crude futures dropped US$1.22, or 1.29%, to US$93.17 by 0035 GMT, while US West Texas Intermediate crude fell US$1.20, or 1.38%, to US$85.86 a barrel.

Both contracts had gained more than five percent the previous week, as US-Iran peace talks stalled, capping oil shipments through the Strait of Hormuz, where a fifth of the world's supply typically passes. Treasury Secretary Scott Bessent was due to deliver a press conference at 2pm EDT (1800 GMT) on Monday, vowing to impose the most stringent sanctions ever on Iran.

President Donald Trump has also hinted at sanctioning Iran's trading partners. The effectiveness of Washington's strategy to economically isolate Iran remains uncertain, according to commodities analyst Vivek Dhar of Commonwealth Bank of Australia. However, if the US measures succeed, Tehran's response through heightened violence could pose an increasing threat to energy markets.

Iran has vehemently opposed the prospect of new sanctions, while President Masoud Pezeshkian called for diplomacy. The more moderate elements within Iran's leadership would likely seek de-escalation, but hardliners are unlikely to back down, according to IG markets analyst Tony Sycamore. Offers of Iranian crude to Chinese buyers have dwindled, and prices have surged as the US blockade has curtailed Tehran's exports.

Nonetheless, Iran has granted permission for several Iraqi oil tankers to transit the Strait following repeated requests from Baghdad, as reported by Iran's state news agency IRNA on Saturday.