Oil prices steady as investors weigh impact of expanded US sanctions against Iran

By Ishaan Arora

Aug 25 (Reuters) - Oil prices steadied on Tuesday, after falling more than 2% in the previous session, as investors assessed the impact of harsher U.S. secondary sanctions against Iran.

Brent crude futures were down 9 cents, or 0.1%, at $92.16 by 0104 GMT, while U.S. West Texas Intermediate crude was up 1 cent at $85.02 a barrel.

Both contracts fell more than 2% on Monday with U.S. crude oil falling to a one-week low on profit taking after prices rallied over the previous two weeks.

U.S. Treasury Secretary Scott Bessent on Monday unveiled an expansion of sanctions to cut off Iran's economic lifeline, to force an end to the war between them, telling countries they would need to sever their business ties or risk being cut out of the dollar-based financial system.

However, he declined to identify the countries that would be targeted or reveal when those penalties would take effect, saying he would instead provide them time to comply with the new directive.

While U.S. Defense Secretary Pete Hegseth said on Monday the U.S. would not rule out using military force against Iran, the country is turning towards more economic coercion, which analysts said removed concerns about threats to Middle Eastern oil supply because of the war.

"Markets appear to be pricing economic pressure as a lower-risk path for physical supply than kinetic action, which is why the initial reaction was for oil to move lower rather than spike higher," said Tim Waterer, chief market analyst at KCM.

However, he warned, "Iran still retains the ability to respond by disrupting shipping, which continues to keep a residual premium in the oil price."

Highlighting those threats, an oil tanker was struck on Tuesday by an unidentified projectile and disabled about 9 nautical miles (16.7 km) northeast of Oman's Ash Shishah, the United Kingdom Maritime Trade Operations said.

Iran is still maintaining it should have control over the key Strait of Hormuz, which before the war started in February typically carried cargoes equal to about 20% of global oil use. On Monday, it named 45 tankers that had broken its rules on crossing the strait and threatened action against them, up to confiscating their cargoes.

The supply disruptions as a result of the U.S.-Israeli war on Iran that started on February 28 have caused countries to draw down their commercial and strategic reserves.

On Monday, the Department of Energy reported stocks of crude oil in the U.S. Strategic Petroleum Reserve fell by about 3.7 million barrels to 289.7 million barrels last week, the lowest since November 1982.

(Reporting by Ishaan Arora in Bengaluru; Editing by Christian Schmollinger)