Recent crude oil prices have followed an upward trajectory, though the gains remain relatively contained and have failed to decisively break above prior highs. This is primarily due to geopolitical tensions between the U.S. and Iran providing some support, yet the intensity of the conflict has not met market expectations, and there has been no fresh increase in supply-side reductions.
Even so, the U.S.-Iran standoff remains the core factor influencing oil prices in the near term, outweighing the impact of commodity and financial fundamentals. On the political front, the U.S. announced late last week plans to impose its "most severe economic action" on Iran, signaling a shift from military confrontation to economic pressure. Washington indicated it would use sanctions to cripple Iran's economy and avoid large-scale military operations, while also noting that military options remain on the table. This news initially provided solid support for oil prices in the latter half of last week.
However, following public remarks from U.S. Treasury Secretary Bessent, market expectations for immediate sanctions have cooled significantly, prompting a partial pullback of the geopolitical risk premium that had been priced in. Bessent's comments suggest the newly announced "economic action" is more of a deterrent than the secondary sanctions targeting countries doing business with Iran that markets had widely anticipated. Future secondary sanctions could potentially apply to nations and entities engaged with Iran across technology, gold, aviation, and shipping sectors.
Looking at the trajectory since the U.S.-Iran conflict began, Washington initially appeared to favor swift, decisive action to suppress Iran's military response capabilities. But as the situation evolved, the U.S. has leaned toward using financial and trade barriers to build a long-term containment network — an approach not markedly different from its long-standing strategy against Iran over the years. This is one of the key concerns currently weighing on markets.
As analyzed in previous reports, if the sanctions announced this week mirror pre-conflict measures — limited to restricting Iranian crude exports, freezing overseas assets, and cutting off international settlement channels — the supply disruption premium fueled by the "most severe" rhetoric would face rapid erosion. After all, such conventional sanctions have been repeatedly priced in over the past several years and are unlikely to create meaningful incremental disruption to Iran's actual crude export volumes.
Judging by the Treasury Department's latest statements, the U.S. does not appear poised to impose additional sanctions on Iran at this stage, as both the follow-up plans and their objectives remain vague and ill-defined. Beyond economic measures, reports emerged suggesting the U.S. has proposed lifting blockades and sanctions in exchange for Iran reopening the Strait of Hormuz and halting attacks by its proxy groups. This news triggered a sharp selloff in international oil prices during European trading hours.
Adding to the diplomatic momentum, Pakistan reported "productive" discussions with Iran on preventing further escalation, restarting negotiations, and reopening the Strait of Hormuz, claiming "significant progress" had been made. Together, these signals suggest the conflict may be gradually moving toward de-escalation.
While diplomatic overtures have injected a degree of calm into the market, the military posture remains unchanged. The U.S. confirmed last week that the USS George Washington carrier strike group arrived in the region on the 19th and is executing its mission as planned. Combined with the USS Lincoln still deployed in the Middle East and the USS Ford returning home, the U.S. maintains a dual-carrier deterrent presence. This heightened military footprint not only backs potential economic sanctions with force but also signals that Washington, despite emphasizing economic measures, has not ruled out further military pressure — leaving potential risks to navigational safety in the Strait of Hormuz.
In summary, while political dynamics have introduced renewed uncertainty, the geopolitical risk premium remains the core variable underpinning oil prices. From a market perspective, Middle East geopolitical factors continue to dominate price action. After the U.S. announced economic sanctions on Iran, reports emerged that the two sides had reached a ceasefire agreement and that freedom of navigation through the Strait of Hormuz would be gradually restored — significantly easing market concerns over potential supply disruptions from the region.
However, it is worth noting that the U.S. dispatched an additional carrier to the Middle East last week, and President Trump has stated that the option of military action has not been taken off the table. This could introduce unpredictable volatility to oil prices. On the supply side, despite OPEC+ and other producers maintaining output increases and non-DOC producers like the U.S. sustaining elevated export levels, the low transit volumes through the Strait of Hormuz — a direct result of the U.S.-Iran conflict — continue to keep international crude supply in a tightened state, reinforcing concerns over potential supply interruptions.
In the short term, oil prices may continue to give back earlier geopolitical risk premiums amid headline-driven volatility. However, considering that Strait of Hormuz transit has yet to fully recover and U.S. military deployments in the region remain undiminished, there is still potential for prices to spike again on geopolitical shocks. Given this outlook, a cautious approach to short-term crude futures trading is advised, while options strategies — such as light positions in out-of-the-money straddles — could be considered to hedge against subsequent volatility. This content is for reference only.