Bessent Bets Iran Sanctions Will Break Oil's $94 Rally

Bessent says the next round of economic measures against Iran will push oil prices down faster, even as Brent tops $94 a barrel.

Treasury Secretary Scott Bessent said he could not explain the latest surge in crude prices and promised that economic measures Washington will announce next week would bring them down faster, as Brent topped $94 a barrel.

"Today oil prices surged, I really don't understand what's going on," Bessent said, adding that the upcoming economic measures "will mean oil prices will fall faster." He plans a press conference Monday to detail the administration's strategy toward Iran.

Brent rose for a fifth straight day to top $94 a barrel, while West Texas Intermediate climbed 3.6% to $88.88. The 30-year Treasury yield rose 7 basis points to 5.26%, and S&P 500 futures fell 0.6% as Walmart Inc. tumbled 6% on disappointing earnings.

The stakes are high for global markets. Iran controls the Strait of Hormuz, which normally carries about one-fifth of global petroleum consumption, and Washington has threatened what Bessent called "unprecedented" economic isolation of Tehran. The Treasury chief's bet is that tightening the squeeze on Iran's economy will force oil prices down — a view that runs against the market's current direction.

President Donald Trump on Wednesday escalated the pressure campaign, announcing what he called an "economic D-Day" against Iran that would consist of "economic warfare and isolation on an unprecedented scale." He warned that any country allowing its financial institutions, businesses, airports or government entities to provide a lifeline to Iran would face "tremendous economic consequences," targeting oil smuggling, swap lines, cash transfers, exchange houses, ship registries and front companies.

The measures come as the Strait of Hormuz blockade has redirected 65 vessels since it restarted on July 14, with about 5 million barrels a day getting through the waterway versus 15 million before the war began in February. Iran's Foreign Minister Abbas Araghchi dismissed the threat, calling the "economic D-Day" a diversion from America's own crisis — the national debt crossing $40 trillion — and predicting the pressure would backfire.

The cross-asset reaction shows how tightly the oil spike is feeding into inflation expectations. Long-dated Treasuries gave up gains, with the 30-year yield up 7 basis points to 5.26%, while the dollar was little changed and gold dipped below $4,500 an ounce. Bitcoin traded above $70,000 for the first time since June.

The last time Washington leaned this hard on secondary sanctions against a major oil producer was the 2018 re-imposition of Iran sanctions, which helped push Brent from about $70 to a four-year high above $86 within months before the pandemic crushed demand. Analysts warn the current dynamic may differ because the supply disruption is physical, not just financial.

"If there's a structural reason why bond yields are drifting higher, a bit of short-term intervention buys you a little bit of time, but doesn't necessarily change the longer-term trajectory," said Graham Secker, equity strategy head at Pictet Wealth Management.

Bessent's announcement of a surprise increase in long-term bond buybacks to stem the rise in yields has drawn similar skepticism. With oil rising toward $90, "investors are increasingly concerned about the possibility of a more prolonged inflation shock," said Fiona Cincotta, analyst at Forex.com.

The escalation is also reshaping the region's trade map. The United Arab Emirates suspended all trade and financial dealings with Iran after accusing Tehran of firing two ballistic missiles into the Gulf, while China — Iran's largest trading partner — remains exposed to any expansion of secondary sanctions targeting intermediaries handling Iranian commerce.

Traders now look to Bessent's Monday press conference for specifics on the Iran measures, and to Federal Reserve Chairman Kevin Warsh's remarks at the Jackson Hole symposium next week for guidance on whether the central bank will adjust rates. If the Treasury's buybacks suppress long yields and loosen financial conditions, the Fed may have to compensate through higher policy rates — a trade-off that could keep the pressure on both bonds and equities.

This article is for informational purposes only and does not constitute investment advice.