Oil rebounds as US squeezes Iran, but China may decide how hard sanctions bite

Oil prices recovered on Tuesday after a sharp pullback in the previous session as traders weighed tougher US sanctions on Iran against signs that Washington’s economic campaign may pose less immediate danger to physical supply than renewed military action.

Brent crude rose 0.3% to $92.44 a barrel in Asian trading, while WTI gained 0.4% to $85.38.

Both benchmarks had fallen more than 2% on Monday as investors took profits following two weeks of gains.

The market is now trying to judge whether the sanctions will materially reduce Iranian exports or simply prolong the stand-off around the Strait of Hormuz.

Sanctions create a slower-burning risk for oil

The US Treasury expanded its pressure campaign on Monday, targeting more than 60 entities, individuals and vessels while warning countries and companies that continued business with Iran could eventually trigger secondary sanctions.

Washington is broadening the measures across areas including shipping, technology, digital assets and aviation.

Treasury Secretary Scott Bessent said trading partners would receive defined periods to wind down their Iran exposure, although the administration stopped short of immediately penalising major economies such as China.

That distinction helps explain oil’s relatively restrained reaction.

Rystad Energy’s Jorge Leon told The Wall Street Journal that China remains the crucial variable because it is effectively the only major buyer left for Iranian crude.

In his assessment, Tehran’s oil revenue may see limited additional damage unless Beijing materially reduces purchases.

Hormuz keeps the geopolitical premium intact

The physical supply threat has not disappeared. An oil tanker was struck and disabled on Tuesday about 17 kilometres northeast of Ash Shishah, Oman, according to the UK Maritime Trade Operations agency.

Iran has separately blacklisted 45 tankers that it says violated transit rules in the Strait of Hormuz, threatening fines, detention and cargo confiscation.

The list includes crude, LNG and product tankers linked to several major regional and international operators.

Before the conflict, the Gulf accounted for energy flows equivalent to roughly 20% of global oil consumption, making Hormuz particularly important for Brent, which reflects the international seaborne crude market more directly than WTI.

BNY strategist Geoff Yu, in comments published by FXStreet, sees Washington’s expanding economic confrontation as carrying potential spillovers well beyond Iran.

The pressure placed on European and Asian trading partners could increasingly shape both energy flows and wider geopolitical relations.

Shrinking supply buffers leave little room for disruption

The oil market also has less protection against another supply shock.

US Strategic Petroleum Reserve holdings dropped by about 3.7 million barrels last week to 289.7 million barrels, the lowest since November 1982.

Refined fuels are an additional concern.

Asian imports of diesel, jet fuel and other products have fallen sharply from pre-conflict levels, while global refining margins remain elevated as Middle East disruptions restrict access to the crude grades needed to produce key transport fuels.