Oil Slips as Markets Balance Hormuz Risks, Sanctions

Key Moments

Market Snapshot

Oil prices ticked lower on Tuesday as market participants reassessed supply risks tied to ongoing tensions between the United States and Iran, following updated U.S. guidance for commercial vessels using the Strait of Hormuz.

By 0353 GMT, Brent crude oil futures were down 18 cents, or 0.26%, at $68.85 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 21 cents, or 0.33%, to $64.15.

The modest pullback followed gains of more than 1% on Monday. That earlier advance came after the U.S. Department of Transportation’s Maritime Administration advised U.S.-flagged commercial ships to remain as distant as possible from Iran’s territorial waters and to verbally refuse requests by Iranian forces to board.

Strait of Hormuz in Focus

Roughly one-fifth of global oil consumption moves through the Strait of Hormuz, located between Oman and Iran, highlighting the potential impact on worldwide crude flows if tensions in the area escalate.

Iran and fellow OPEC members Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq ship most of their crude exports through this chokepoint, with the majority of volumes destined for Asian buyers.

The U.S. guidance was issued even as Iran’s top diplomat said last week that Oman-brokered nuclear discussions with Washington were off to a “good start” and expected to continue.

“While talks in Oman produced a cautiously positive tone, lingering uncertainty over potential escalation, sanctions tightening, or supply disruptions in the Strait of Hormuz has kept a modest risk premium intact,” Tony Sycamore, an analyst at IG, wrote in a client note.

European Union Eyes Wider Russia Sanctions

In parallel with Middle East concerns, European policymakers advanced steps aimed at tightening restrictions on Russian oil.

The European Union has proposed expanding its sanctions against Russia to cover ports in Georgia and Indonesia that handle Russian oil, according to a proposal document reviewed by Reuters. It would mark the first time the bloc moves to target ports located in third countries.

The initiative forms part of broader efforts to reinforce measures on Russian crude, described as a key revenue stream for Moscow, in connection with the war in Ukraine.

India Adjusts Crude Sourcing

Shifts in trade flows also emerged in Asia. Indian Oil Corp purchased six million barrels of crude from suppliers in West Africa and the Middle East, traders said.

The buying pattern reflected India’s avoidance of Russian oil as the country pursued a trade agreement with Washington, according to those traders.