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Oil prices fell more than 3% on Tuesday as the U.S. pivots to economic sanctions rather than military strikes to pressure Iran.
Brent futures, the international benchmark, fell 3.2% to $89.20 per barrel. U.S. West Texas Intermediate crude was down 3.3% at $82.21 a barrel.
Prices have fallen more than 5% this week after the U.S. government unveiled a fresh raft of sanctions on Iran and so-called “enablers” that continue to trade with the Islamic Republic.
The White House has labeled its efforts an “economic D-Day” with Treasury Secretary Scott Bessent claiming the campaign is “the single greatest financial offensive ever.” Bessent told CNBC last week that the decision to ratchet up economic pressure means a return to war is unlikely for now.
“If we are doing the maximum economic pressure, then that means that likely there will not be a large-scale kinetic restart,” the Treasury Secretary said Thursday in an interview on “Squawk on the Street.”
Meanwhile, the State Department is preparing to return evacuated U.S. diplomats to the Middle East as early as this week, The New York Times reported Tuesday. The return of diplomats to their posts would suggest the Washington is not anticipating a return to all-out warfare.
But U.S. Defense Secretary Pete Hegseth told reporters on Monday that the prospect of further American strikes in the Middle East remained on the table.
“If we need to use kinetic strikes, we’ll use them,” Hegseth said. “If Iran is foolish enough to overplay their hand or mess with the American military, we’ll do what we need to do.”
Oil prices
“Economic pressure hurts them the most right now,” he said of the Iranian regime. “But by no means are we foreclosing using kinetic strikes anywhere in the Strait of Hormuz or around Iran.”
Iranian Economy Minister Ali Madanizadeh said on state television that Tehran is “fully prepared” to withstand more U.S. sanctions.
“The government is and was ready and has a two-year plan to manage these events,” he said. “We have our own tools and we know how to play the game.”
China vows to defend its interests
Under the new sanctions plan, China could face ramifications for continuing to buy Iranian oil. Beijing, one of Iran’s largest trading partners, has repeatedly called for a diplomatic end to the U.S.-Iran war.
On Tuesday, Chinese Foreign Ministry Spokesperson Lin Jian told reporters Beijing would “do everything necessary to firmly safeguard its rights and interests.”
“China has made clear on many occasions its firm opposition to illicit unilateral sanctions that have no basis in international law or the authorization of the UN Security Council,” he said. “Economic warfare and maximum pressure provide no solution.”
He added that China’s cooperation with Iran is conducted within the framework of international law, and should therefore not be disrupted.
In a Tuesday note, BBH strategists said the Trump administration’s latest tactics were “more of a warning shot than a decisive blow.”
“The U.S. expanded sanctions on Iran but stopped short of any immediate secondary sanctions against other countries sustaining Iran’s trade. China is the critical pressure point — it is Iran’s largest trading partner and buys roughly 90% of its oil exports — and the biggest constraint on making the sanctions credible.”
They added that targeting China as a trading partner of Iran would mean targeting major Chinese banks and refiners, “risking financial disruption, Chinese retaliation, and the fragile US-China détente.”
