Brent dips to $93.5—But Trump’s ‘Economic D-Day’ threat signals price surge

Major developments signal another oil price surge

Energy price hikes are directly tied to prevailing uncertainty about when the US-Israel war on Iran will conclude, thereby severely impeding oil supply and its shipments passing through the Strait of Hormuz, through which a fifth of the world’s oil and LNG generally passed before the war. On top of that, the situation hit a major snag when the memorandum of understanding (MoU), an interim peace agreement that Washington and Tehran signed mid-June, recently hit its 60-day expiration date.

The initial price surge this week came right after US President Donald Trump threatened to impose “draconian sanctions” on Iran and hit its ally nations with economic consequences as part of what he called would be the “most crushing economic operation ever taken against any country.” Once the POTUS branded his punitive campaign against Iran an “Economic D-Day,” Trump’s close aide and US Treasury Secretary Scott Bessent also vowed that the US will impose “the toughest sanctions in history” on Iran.

Adding to Trump’s claims of “Economic Warfare,” Bessent told CNBC on Thursday, “If you insist on doing business with them, then the US Treasury and US government will put its full might and force against you. It’s time for our allies and the rest of the world to make a decision.”

It remains to be seen how India and China, the major buyers of Iranian oil, will be impacted by Trump’s latest economic campaign.

Yet another development on Thursday saw the US issue fresh sanctions against Lebanon’s Hezbollah and its ties to Iran, according to a statement obtained by Reuters.

Amid these major changes, analysts are already bracing for a second weekly rise in oil prices despite a slight drop on Friday. The previous five days of the surge recorded Brent gaining more than 7% and WTI rising more than 8%, hitting their highest levels since July 24, according to Reuters.

BMI, a unit of Fitch Solutions, hinted on Friday that the current circumstances signal the risks of Brent price being “tilted to the upside,” as quoted by Reuters.

“Exports are already under considerable pressure, because of the twin disruptions in play ‌in the Strait of Hormuz due to the Iranian shut-in of the strait and the US naval blockade ‌on Iran, and the Red Sea due to the Houthi embargo,” BMI said.

Similarly, IG analyst Tony Sycamore said, “Both sides are dug in but lacking the luxury of time to play the waiting game, against a backdrop of crude prices grinding unerringly higher,” according to Reuters.

US’ new sanctions against Hezbollah

According to a statement obtained by Reuters, the US Treasury Department re-designated the Lebanese group “for service to the Iranian regime under the command of Iran’s Islamic Revolutionary Guard Corps-Quds Force.”

A US official, speaking to the news outlet on condition of anonymity, explained that the redesignation and sanctions sought to shed light on Hezbollah’s actions on behalf of the Iranian government, specifically Iran’s Islamic Revolutionary Guard Corps Quds Force. However, the US official noted that these sanctions against the group were not a part of the “Economic D-Day” threat Trump levelled against Iran and any country providing it “any type of lifeline.”

Hezbollah, which is now both a political party and an armed group in Lebanon, was founded by Iran’s Revolutionary Guard in 1982 during Lebanon’s 1975-90 civil war.

Trump vs Iran intensifies after economic threat

Amid rising tensions between the US and Iran, Trump reiterated that Washington is “essentially controlling” the Strait of Hormuz. In an interview with 77 WABC, he even claimed that the United States will soon be controlling all crucial waterways. Again diving in claims of destruction of the country’s military infrastructure, he told the local US outlet, “We’re doing very well with Iran… The Navy’s gone, the Air Force is gone, the leadership is gone.”

As both sides struggle to see eye to eye and resume direct talks with each other, Trump said that negotiations have been pushed out of the picture because most of the Iranian leadership is “gone.”

“It’s not easy to make a deal. Nobody knows who’s leading. But I think the public sees what we’re doing because Iran can never have a nuclear weapon,” he told 77 WABC.

The MAGA leader even argued that Iran’s economy has already taken a severe hit. Citing weakened currency, he said, “It’s very hard for them to knock out anything. They’re in bad shape… have inflation that’s 300 % there. Their currency is virtually valueless. The military is not being paid. And so they’re in bad shape.”

His previous threats about Iran having to face an “Economic D-Day” were met with heavy criticism from senior Iranian leaders.

Iran’s Foreign Minister Abbas Araghchi slammed the announcement, saying that it sought to distract people from America’s own economic woes. Rejecting the threat, he said that such “failed policies” would ultimately incite more hostility among Iranians and trigger “more failures.”

Iranian Parliament Speaker Bagher Ghalibaf, who emerged as the face of Iran’s delegations during previous talks with the US in Pakistan, further accused the US of “squeezing Iran” to “win concessions that were never part of the agreement” signed in June.

Several Iranian top officials have repeatedly asserted that peace talks will not resume until the US stops violating the MoU.

Even as Iran continues to negotiate with Oman on reopening the Hormuz Strait, Mohammad-Bagher Zolghadr, secretary of Iran’s Supreme National Security Council, emphasised that the waterway will remain shut until the US meets their conditions, according to Iranian media reports.

“Correcting its behaviour means that Iran must never again be threatened or humiliated, aggression against Iran and its allies must end permanently, the naval blockade must be lifted, US naval and air forces must withdraw from around Iran, war damages must be compensated, sanctions must be lifted, and Iran’s frozen assets must be released,” he said.