Oil rises as Trump threatens sanctions on Iran partners

By Erwin Seba

HOUSTON, Aug 21 (Reuters) - International and U.S. crude oil futures rose on Friday after U.S. President Donald Trump threatened economic sanctions on Iran's trading partners, raising expectations of tighter supply in the coming weeks.

International benchmark Brent crude futures settled at $94.39 a barrel, up 61 cents or 0.65%. U.S. West Texas Intermediate crude settled at $87.06 a barrel, up 23 cents or 0.26%. 

The Brent benchmark has gained 6.39% while WTI has risen 5.66% this week, with both touching their highest since July 24 in the previous session.

"Sanctions have been the only thing to bring Iran to heel," said John Kilduff, partner with Again Capital. 

Iran said on Friday that its response to any new U.S. threats would be "devastating" after Washington pledged to impose the toughest financial penalties in history with the aim of toppling the Iranian leadership.

"The immediate impact on supply may be limited as Iranian exports are already heavily constrained by the U.S. naval blockade," said Crispus Nyaga, research analyst at Empire FX.

"However, an increase in shipping incidents and retaliation against economic sanctions could exacerbate the current situation at a time when traffic through the Strait of Hormuz remains well below normal levels."

But, workarounds and alternative supplies are being found while Hormuz remains constrained, said Phil Flynn, senior analyst with Price Futures Group. 

"Hormuz is still a problem, but it is no longer the only story," Flynn said in a morning note. "Pipelines, shuttles, U.S. shale, a recovering (if bottlenecked) Venezuela, and an unconstrained UAE are all adding barrels."

Oil prices have climbed on concerns over the continued curtailment of supply from major oil producers such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait. 

The earlier peace deal between the U.S. and Iran expired this week with no effort by either side to restart talks.

  Offers of Iranian crude to Chinese buyers have declined and prices have jumped this week as the U.S. blockade cuts Iran's shipments, trade sources said, with the threat of more sanctions from Washington looming.

SUPPLY DISRUPTION CONTINUES

Seven commodity ships sailed along the Strait of Hormuz on Thursday, which was only half the previous day's tally, data from ship-tracker Kpler showed.

Before the U.S.-Israeli attacks on Iran began in late February, the Strait of Hormuz handled about a fifth of global oil and liquefied natural gas supplies. As the war approaches the six-month mark, disruptions to energy flows through the waterway remain in place.

Elsewhere, Ukraine's military hit a Russian oil refinery in the city of Perm overnight, more than 1,600 km (1,000 miles) from the Ukrainian border, President Volodymyr Zelenskiy said on Friday.

(Reporting by Erwin Seba in Houston, Anushree Mukherjee in Bengaluru, Enes Tunagur in London and Sudarshan Varadhan in Singapore; Editing by David Goodman, Sanjeev Miglani and Cynthia Osterman)