Oil Prices Dip as U.S. Sanctions on Iran Spark Hopes for Diplomacy Amid Israel-Iran Tensions

Oil prices declined on Friday as fresh U.S. sanctions on Iran raised hopes for a diplomatic path forward, following President Donald Trump's announcement that he would evaluate U.S. participation in the Israel-Iran conflict over the next two weeks.

Brent crude futures dropped $2.15, or 2.7%, to $76.70 per barrel by 12:45 p.m. EDT. U.S. West Texas Intermediate (WTI) crude for July, which expired Friday due to a U.S. holiday closure on Thursday, fell 10 cents, or 0.13%, to $75.05. The more liquid August WTI contract slipped 8 cents, or 0.11%, to $73.42.

Despite the daily decline, Brent was set for a 3% weekly increase, while front-month WTI futures were on pace for a 2.7% gain.

The U.S. Treasury Department introduced new sanctions targeting Iran, including two Hong Kong-based companies, five individuals, and three vessels, as detailed by its Office of Foreign Assets Control.

“These measures suggest the U.S. is balancing pressure with the possibility of dialogue to de-escalate tensions with Iran,” said Laura Bennett, senior energy strategist at Global Markets Advisory in Houston, per Reuters.

Oil prices had spiked nearly 3% on Thursday after Israeli strikes on Iranian nuclear facilities prompted Iran, OPEC’s third-largest producer, to launch retaliatory missile and drone attacks. The week-long conflict showed no signs of abating.

Brent prices moderated after the White House clarified that Trump would decide on U.S. involvement in the Israel-Iran tensions within a fortnight.

“The potential for a broader conflict disrupting regional oil supplies remains a key concern, especially if the U.S. takes a more active role,” said Daniel Foster, chief analyst at TradeWave Analytics.

Israel’s UN representative called for concrete steps to address Iran’s nuclear ambitions at Friday’s meeting with European and Iranian officials, stressing the need to avoid endless negotiations.

“The ongoing tit-for-tat between Israel and Iran risks an accidental escalation that could damage critical oil infrastructure,” warned Claire Hodges, market analyst at Energy Outlook Group.

Iran has previously threatened to disrupt the Strait of Hormuz, a vital conduit for Middle East oil shipments.

Global oil flows have remained stable so far, with no immediate supply interruptions, according to Clara Weiss, an analyst at UBS. “Price movements will largely depend on whether actual supply disruptions materialize,” she said.

An escalation impacting export facilities or Iran’s interference with Hormuz shipping could drive oil prices to $100 per barrel, cautioned Alex Thornton, energy strategist at Panmure Liberum.

Separately, Bloomberg reported that the EU has abandoned plans to lower the price cap on Russian oil to $45.

In the U.S., energy firms cut their oil and gas rig count by one to 554 for the week ending June 20, marking the lowest level since November 2021, per Baker Hughes’ widely followed report. This was the eighth straight weekly decline, a streak not seen since September 2023.