Oil falls as Strait of Hormuz traffic recovers amid Iran standoff

Crude oil prices declined on Monday as traders weighed Washington's escalating economic pressure campaign against Iran, with markets looking ahead to Treasury Secretary Scott Bessent's expected announcement of new sanctions details.

Brent crude fell to around $92 a barrel while West Texas Intermediate dropped below $86, reversing part of last week's rally that saw both benchmarks gain more than 5% on escalating rhetoric from the Trump administration. The selling extended across the energy complex, with natural gas, gasoline, and heating oil each declining between 1.68% and 1.88%.finance.yahoo+1

Economic Warfare Escalation

The declines came despite President Donald Trump announcing on August 19 what he described as the "most crushing economic operation ever taken against any country," warning that nations providing support to Tehran could face severe economic consequences. Bessent made the same case in a Financial Times opinion piece published Sunday, writing that "an economic D-Day begins at dawn," and is expected to provide further details at a news conference on Monday.beincrypto+1

The United States warned allies and China on Thursday to join the campaign, which comes as the war in the Middle East approaches the six-month mark. Vice President JD Vance called the plan a "delicate dance," acknowledging Iran would "try to apply economic pressure on us."finance.yahoo

Strait of Hormuz Loosening

Monday's price reversal appears driven by supply developments rather than the policy outlook. Ship transits through the Strait of Hormuz climbed from 39 to nearly 200 over two weeks — a roughly 400% increase — as U.S. Navy escorts helped vessels navigate a corridor along Oman's coast. Traffic still sits approximately 90% below pre-war levels, when about 20.9 million barrels a day moved through the waterway.nypost+1

David Wech, chief economist at energy intelligence firm Vortexa, told CNBC that the average over the past month has been 6 to 7 million barrels per day, with peak volumes on a seven-day moving average reaching nearly 10 million barrels. Energy Secretary Chris Wright said the U.S. military helped ship over 15 million barrels through the strait on one recent day, though the seven-day average is 8 million.fortune

Prolonged Conflict Risks

The partial reopening of the strait could paradoxically extend the conflict. Dan Alamariu, chief geopolitical strategist at Alpine Macro, wrote that "barrels getting through raise the odds of a longer war, possibly deep into 2027: neither side feels urgency if oil does not materially move and Iran still earns enough to sustain the regime."fortune

Iran's own exports have dropped to near zero under the renewed American blockade, while the United Arab Emirates last week suspended all trade with Tehran over renewed missile fire. Iran dismissed the economic campaign as an admission of military defeat, with IRGC spokesman Hossein Mohebbi calling it "a tacit acknowledgement of Washington's defeat on the military front."nypost+1

Investors are also watching this week's Jackson Hole gathering of central bankers for clarity on U.S. monetary policy, as well as earnings from Nvidia ↘ 0.98%, the world's most valuable company, on Tuesday.finance.yahoo