Oil prices hold steady as Iran sanctions and tanker attack offset supply fears

Oil prices stabilized on Tuesday after a sharp decline in the previous session, as investors digested the implications of expanded US sanctions against Iran. Brent crude futures dipped marginally to $92.16 a barrel, while US West Texas Intermediate (WTI) crude held steady at $85.02.

The market's initial reaction came after both benchmarks fell more than 2% on Monday, with WTI hitting a one-week low on profit-taking following a two-week rally. The pullback was driven by the perception that the US is favoring economic coercion over military action in its approach to Iran.

US Treasury Secretary Scott Bessent unveiled an expansion of sanctions aimed at cutting off Iran's economic lifeline, warning countries that they must sever business ties with Tehran or risk being excluded from the dollar-based financial system. However, he did not specify which countries would be targeted or when the penalties would take effect, instead allowing time for compliance.

While Defense Secretary Pete Hegseth did not rule out military force, analysts noted that the shift toward economic pressure has reduced concerns about immediate threats to Middle Eastern oil supply. "Markets appear to be pricing economic pressure as a lower-risk path for physical supply than kinetic action," said Tim Waterer, chief market analyst at KCM.

Despite this, Waterer cautioned that Iran retains the ability to disrupt shipping, keeping a residual risk premium in prices. Those concerns were underscored on Tuesday when an oil tanker was struck by an unidentified projectile and disabled about 9 nautical miles northeast of Oman's Ash Shishah, according to the United Kingdom Maritime Trade Operations.

Iran continues to assert control over the Strait of Hormuz, a critical waterway that typically carries cargoes equivalent to about 20% of global oil consumption. On Monday, Tehran named 45 tankers it said had violated its rules on crossing the strait and threatened action, including confiscation of cargoes.

The ongoing conflict, which began on February 28, has prompted countries to draw down their commercial and strategic reserves. The US Department of Energy reported that crude oil stocks in the Strategic Petroleum Reserve fell by approximately 3.7 million barrels last week to 289.7 million barrels, the lowest level since November 1982.