25th August 2026
For anyone who has been watching the oil price over recent months, the latest movement might seem rather strange. The United States has intensified economic pressure on Iran, Scott Bessent has warned of an "economic D-Day", Iran is under increasing financial pressure and there has even been another incident involving an oil tanker near Oman.
Yet instead of shooting upwards, Brent crude has fallen back towards $92 a barrel.
The explanation is that oil traders are increasingly looking beyond the immediate headlines and trying to work out what the economic consequences of the confrontation will actually be.
And at the moment, the market appears to be concluding that the latest American measures may ultimately bring the two sides closer to a settlement rather than immediately cutting large quantities of oil from the world market.
That is a remarkable change from the situation earlier in the conflict, when fears over the Strait of Hormuz pushed oil prices sharply higher.
The market is betting on economics rather than escalation
The latest American strategy is increasingly economic rather than military.
Treasury Secretary Scott Bessent has announced expanded sanctions designed to cut Iran off from international financial channels and put pressure on countries and companies that continue doing business with Tehran. The measures are intended to damage Iran's economic lifeline rather than immediately launch another military escalation.
That distinction is important for oil.
If the United States were preparing an immediate military escalation that threatened Iranian oil production or shipping through the Strait of Hormuz, traders would probably demand a much larger risk premium.
Instead, markets are currently interpreting the latest moves as an attempt to force Iran back towards negotiations.
That is why the oil price has fallen rather than risen.
Reuters reported that analysts at ING regarded the latest American pressure as relatively marginal from the perspective of the immediate oil market, while the absence of an immediate military escalation reduced fears of a sudden supply shock.
In other words, traders are effectively saying:
"This is serious, but it doesn't necessarily mean less oil will reach the world market tomorrow."
But there is another reason: oil prices had already risen
There is also a simpler explanation.
Oil had already risen substantially during the preceding weeks as traders built a risk premium into the price.
When that happens, investors who bought oil expecting further rises eventually start taking profits.
That is partly what happened on Monday, when Brent and WTI both fell by around 2.4% following a six-session rally.
Markets don't move simply according to whether the news is good or bad.
They move according to whether the news is better or worse than traders had already anticipated.
If traders have already priced in a serious Iran disruption and the next development turns out to be "more sanctions but no immediate closure of Hormuz", the price can fall even though the underlying geopolitical situation remains extremely dangerous.
The Strait of Hormuz remains the big danger
This is the factor that could change the picture very quickly.
The Strait of Hormuz is one of the world's most important oil chokepoints, carrying roughly a fifth of global oil flows.
That means the oil market is effectively balancing two very different possibilities.
One possibility is that the economic pressure eventually produces negotiations, shipping gradually returns to normal and Iranian oil continues reaching international markets.
If that happens, oil could fall considerably further.
The other possibility is that Iran decides that economic pressure has gone too far and retaliates by disrupting shipping through Hormuz.
That would be a completely different situation.
Oil could rise dramatically because traders would suddenly have to price in a physical shortage rather than merely a geopolitical risk.
And that is why today's $92 price should not be interpreted as meaning that the danger has disappeared.
There is an extraordinary contradiction in the market
Iran is under enormous economic pressure.
Its currency has fallen to an extraordinary low and inflation is causing severe problems. Reports today suggest Iran is experiencing petrol shortages despite being one of the world's major oil producers, partly because its refining system and fuel supply have been disrupted.
At the same time, Iran still possesses one of the most powerful bargaining tools available to it:
oil.
Iran can potentially disrupt the movement of oil through Hormuz.
That gives Tehran a powerful incentive not to use that weapon unless it believes the situation has become desperate.
But it also means the United States has to be careful.
If sanctions become so severe that Iran concludes it has nothing left to lose, the risk of retaliation could increase rather than decrease.
That is why today's oil price is perhaps less reassuring than it initially appears.
What happens to Iranian oil?
This is probably the most important economic question over the next few weeks.
China is Iran's biggest oil customer and has historically continued buying Iranian crude despite American sanctions.
But the latest American measures are aimed particularly at companies and financial institutions that facilitate Iranian trade.
Reports indicate that Iranian oil shipments to China have already fallen substantially, from around 1.57 million barrels a day in February to approximately 534,000 barrels a day in August, although the exact flows are difficult to measure because Iranian oil is frequently moved through complicated trading and shipping arrangements.
If American pressure genuinely removes a large proportion of Iranian oil from the international market, then the current $92 price could prove temporary.
But if China continues buying Iranian oil and alternative supply is available elsewhere, the effect could be much smaller.
That is why the oil market is watching actual barrels rather than political speeches.
So what are the chances of another big increase?
I would be very careful about predicting a single number, but I think the risks can now be understood in three broad directions.
The first possibility is a further fall.
If the American economic pressure leads to negotiations, the Strait of Hormuz gradually returns to normal and Iranian oil exports recover, the risk premium currently embedded in crude could disappear.
In that situation, Brent could move substantially below $90 and potentially back towards the levels seen before the crisis.
We have already seen how quickly this can happen. In June, as more tankers began leaving Hormuz and fears of a prolonged disruption eased, Brent fell back to pre-war levels.
The second possibility is that oil remains around current levels.
This may actually be the most likely short-term outcome if neither side makes a decisive move.
Iran remains under pressure.
America continues sanctions.
Some shipping continues.
The Strait remains risky.
But there is no complete blockade and no major destruction of additional oil infrastructure.
In that situation, something around the $85–$100 range could become the market's uncomfortable new normal.
The third possibility is another sharp rise.
That would require a significant physical disruption.
The obvious trigger would be serious interference with shipping through Hormuz, a major attack on oil infrastructure or a breakdown in the negotiations accompanied by military escalation.
Then $100 oil could return very quickly.
Indeed, it could go considerably higher.
The market is therefore not saying "the crisis is over"
This is probably the most important message for households and businesses.
Today's oil price should not be interpreted as evidence that the Iran crisis is safely behind us.
It is better interpreted as evidence that financial markets currently believe economic pressure has a reasonable chance of producing a diplomatic outcome without causing a fresh physical oil shock.
That is a much more conditional statement.
And markets can change their minds extraordinarily quickly.
One missile strike, one tanker incident, one announcement from Tehran or Washington, or one failed negotiation could change the calculation.
For Britain, the consequences go well beyond petrol
This matters particularly for the UK because crude oil prices feed into far more than the price displayed on a petrol station sign.
Higher oil affects diesel.
It affects transport costs.
It affects aviation.
It affects fishing.
It affects manufacturing.
It affects agricultural costs.
And, importantly, it can eventually feed into inflation.
That is why the Bank of England watches energy markets so closely.
For rural communities such as Caithness, the impact can be particularly noticeable because transport distances are longer and alternatives to road transport are limited.
The same applies to households still dependent on heating oil.
A movement from $85 to $100 a barrel might not sound dramatic when expressed as a percentage, but it can eventually translate into significantly higher household and business costs.
And because heating oil is purchased in relatively large quantities, the effect can be felt immediately when a tank needs filling.
There is another factor working against a huge oil price rise
The world is not entirely dependent on Iranian oil.
Other producers can increase output, strategic reserves can sometimes be used and demand can respond to higher prices.
There is also the possibility that high oil prices themselves weaken the global economy.
That creates a self-correcting mechanism.
If oil becomes extremely expensive, consumers drive less, businesses cut fuel consumption and economic activity slows.
Demand for oil then falls.
That can eventually put downward pressure on the price.
This is one reason why the oil market sometimes reacts violently to geopolitical crises without necessarily remaining at extremely high levels for very long.
But the danger of $100 oil has not gone away
In fact, I would say the risk is materially higher than it would be in an ordinary year, simply because the world's oil supply is being affected by a conflict involving one of the most strategically important shipping routes on the planet.
The current price around $92 suggests that traders are not presently pricing in a full-blown Hormuz crisis.
But that is not the same as saying that such a crisis is impossible.
And there is a particularly interesting economic paradox developing.
The more successful America's economic pressure becomes, the greater the pressure on Iran becomes — but the greater the incentive may also become for Iran to use its remaining strategic leverage.
That is why the coming weeks could be extremely important.
If economic pressure produces negotiations, oil could fall.
If economic pressure produces retaliation, oil could rise sharply.
If neither side moves, we could simply remain stuck with a substantial geopolitical premium in the price.
My reading of the situation
At around $92 Brent, I would not currently regard another move above $100 as the most likely immediate outcome. The market appears to be giving considerable weight to the possibility that the economic offensive eventually produces negotiations and that oil flows can gradually normalise. Today's relatively muted reaction to the new sanctions supports that interpretation.
But I would also not regard $100 as an unlikely possibility.
The key distinction is between an economic crisis and a physical oil-supply crisis.
At present we are predominantly seeing the former.
If it becomes the latter — particularly if Hormuz shipping is seriously disrupted — the oil price calculation changes almost instantly.
And that is why, despite today's fall, the oil market remains one of the most important warning indicators for the UK economy over the next few months.
The comforting news is that the price has eased.
The less comforting news is that the reason it has eased is largely a market expec