Oil prices jump after US-Iran ceasefire expires and Trump threatens Oman

Market reaction to expired negotiations window

Brent crude climbed above $90 a barrel for the first time since 30 July, trading at $91.63 on Tuesday morning, as reported by The Guardian. The rise followed the expiration on Monday of a two-month window to negotiate a peace deal in the conflict involving the United States, Israel and Iran, with no agreement reached. Analysts at Deutsche Bank wrote that the price movement reflected investors pricing in a more extended closure of the Strait of Hormuz. Dan Alamariu, chief geopolitical strategist at Alpine Macro, cautioned that an extended conflict in the Middle East combined with Russia's war in Ukraine could lead energy prices to higher levels.

Only six commodity ships travelled through the Strait of Hormuz on Monday, according to ship-tracking data from Kpler cited by The Guardian, slightly up from the five vessels that transited over the preceding weekend. A cargo ship was attacked while travelling through the waterway early on Tuesday, the UK Maritime Trade Operations agency reported. An Iranian official warned that vessels attempting to pass through the strait would 'find several beautiful holes in their hulls', though the official's exact position was not specified beyond that attribution.

US blockade and shrinking Iranian exports

The United States re-imposed a blockade of Iran's shipping and ports on 13 July, according to reporting in DAWN, Livemint and the Jerusalem Post, after a deal to halt the war broke down. The measure aims to curtail oil sales, a primary source of hard currency for Tehran. No visible crossings of the Strait of Hormuz by supertankers carrying Iranian crude have been recorded since mid-July, according to Kpler data, though many vessels disable location transponders.

Iran's oil shipments to Asian buyers have nearly dried up, as reported by Bloomberg and carried by DAWN and Livemint. Loaded Iranian tankers have been unable to leave the Persian Gulf while empty vessels remain stranded outside the region. China's Iranian oil imports fell to 785,000 barrels per day in June, the lowest since February 2023, probably rose to 823,000 bpd in July, and dropped to 534,000 bpd in August, according to provisional Kpler data cited by both Dawn and the Jerusalem Post. China's purchases averaged 1.4 million bpd last year, and the country buys more than 80 percent of Iran's shipped oil on Kpler data.

Floating storage of Iranian crude outside the blockade zone has declined to about 80 million barrels from roughly 105 million barrels before the blockade was reinstated, the Jerusalem Post reported citing Kpler. Kpler analyst Muyu Xu estimated 40 million barrels of Iranian crude are held on ships in waters east of peninsular Malaysia, most already promised to buyers. Trade sources cited by Livemint put the volume available for sale at only around 4 million barrels, equivalent to roughly two supertankers. Other sources estimated that only 30 million barrels remain in Asian waters.

Chinese refiners face supply squeeze

Chinese independent refiners, known as teapots and concentrated in Shandong province, have been the main buyers of Iranian crude and account for about a fifth of China's refining capacity, the Jerusalem Post noted. China's large state refiners have avoided Iranian oil since 2019. Iranian crude delivered to China has largely been labelled as Malaysian or Indonesian and settled in yu pone, as reported by DAWN.

Offers of Iranian crude to Chinese buyers have declined and prices have jumped. Iranian crude that previously traded at a discount is now being offered at a premium. One set of trade sources cited by the Jerusalem Post put the premium at about $2 per barrel to ICE Brent, having been quoted at a discount of around $3 per barrel earlier that week, while Livemint, citing Bloomberg, reported a premium of about $4 per barrel. Emma Li, lead China market analyst at Vortexa, told Livemint that Iranian crude is trading close to its highest level since the end of the previous US administration. Higher prices may prompt teapots to switch to conventional grades or reduce processing. One teapot purchased Brazil's Lapa crude this week, while others looked at Iraq's Basrah grade, as reported by the Jerusalem Post. Chinese refiners are also dealing with weaker domestic demand, elevated benchmark prices, and growing electric vehicle adoption.

Sanctions pressure and planned US measures

US Treasury Secretary Scott Bessent is scheduled to outline what he has called “the greatest coordinated economic isolation in the history of the world,” with a press conference planned for Monday night, according to Dawn and Livemint. In a Financial Times column quoted by Livemint, Bessent wrote that “Iran's enablers purchase and transport its petroleum. They facilitate the flow of its finances through exchange houses and free trade zones." The Jerusalem Post reported that Bessent has threatened Iran with the “toughest sanctions in history."

Washington has intensified efforts since President Donald Trump took office, imposing sanctions on smaller Chinese refiners and, in April, on Hengli Petrochemical (Dalian) refinery and about 40 shipping firms and vessels. Hengli has denied buying Iranian oil. The US Treasury has also warned two larger Chinese banks about possible secondary sanctions. China responded to the Hengli designation by ordering domestic companies not to comply, as reported by Livemint. Earlier sanctions have done little to slow overall flows; imports stood at 1.24 million and 1.58 million bpd in January and February, Dawn noted.

Perspectives

The US administration, through President Trump and Treasury Secretary Bessent, has framed the measures as necessary to force an end to the conflict and isolate Iran economically. The Guardian reported that Trump told Fox News he demanded Iran “put up the white flag of surrender,” and that he said he was “not in a hurry” to reach a deal. According to the same report, he warned that if Oman “gets in the way” of his efforts, “If Oman gets in the way, we’Il bomb the shit out of them.” (the exact ad exhaustive quote may contain profanity).

Iranian officials have signalled a harder line. Iran’s military spokesperson? A statement said Iran would take a more aggressive stance if negotiations fail, and an official said ships would find holes, as quoted by The Guardian.

China has rejected unilateral sanctions. A foreign ministry spokesperson said sanctions will not solve the conflict, the Jerusalem Post reported, and Beijing has called for resolution through diplomatic and political means, according to Dawn.