Oil Drops As Traders Doubt Iran Sanctions: 'Trump Bark Is Far Worse Than His Bite,' Analyst Says

Oil prices slid Wednesday as investors shrugged off Donald Trump's renewed "maximum pressure" sanctions on Iran, focusing instead on surging U.S. crude inventories and skepticism over how aggressively economic sanctions will be enforced.

Despite the president's hardline rhetoric, markets appeared unconvinced that Iranian oil flows would be meaningfully disrupted in the near term.

West Texas Intermediate crude – as tracked by the United States Oil Fund USO – fell 1.6% to $71.50 per barrel by 11:30 a.m. ET, approaching its lowest daily close since Dec. 31, 2024.

According to the U.S. Energy Information Administration, commercial crude oil inventories rose by 8.66 million barrels for the week ending Jan. 31, far exceeding expectations of 2.6 million. Gasoline stocks also climbed by 2.23 million barrels, further pressuring prices.

Traders Question Trump's Impact On Iranian Oil

On Tuesday, Trump signed a memorandum aimed at intensifying economic pressure on Iran, insisting he would not allow the country to develop nuclear weapons. "With me, it's very simple. Iran cannot have a nuclear weapon," Trump said.

"We don't want to be tough on Iran. We don't want to be tough on anybody. But they just can't have a nuclear weapon."

Markets were quick to react with skepticism. "With Netanyahu becoming the first foreign leader to visit Trump, it's no surprise that the rhetoric from the White House turned toward the Middle East," said Sipan Habib, a derivatives trader at Novion.

"Traders are clued up to the fact that Trump's bark is far worse than his bite, and though he's talking—or should that be shouting—about sanctions limiting Iranian oil supply, the fact is that higher oil prices equal higher gas prices and are, therefore, a political hot potato back at home," Habib said.

How Much Can Trump Really Squeeze Iran's Oil Exports?

Iran’s oil exports, which plummeted to as low as 400,000 barrels per day during Trump's first term, have rebounded significantly under former President Joe Biden.

According to estimates from Energy Intelligence, Iranian crude exports averaged around 1.7 million barrels per day in 2024, their highest level in six years.

Nearly all of these exports go to China, either directly or through Malaysia, where shipments are often disguised, the firm said.

"In order to drive down Iranian oil exports, Trump would need to either coerce or secure cooperation from China, which buys the great majority of Iran's crude sales," said Energy Intelligence in a report Wednesday.

China has shown little willingness to curb Iranian imports in recent years, making it unclear whether Trump's renewed sanctions would meaningfully impact Tehran's oil revenues.

Goldman Sachs Projects Modest Supply Disruptions

In a note shared Wednesday, Goldman Sachs commodity strategist Daan Struyven highlighted that markets are already showing early signs of friction from U.S. sanctions on both Russian and Iranian oil flows.

"Russia oil-on-water storage increased by 17 million barrels since the Jan. 10 sanctions, and we expect further builds up to 50 million barrels in the first half of 2025, which should push up spot oil prices by $2 per barrel," Struyven said.

"Iran floating storage also increased by 14 million barrels year-to-date."

Despite these trends, Goldman Sachs remains cautious on the overall impact.

"We expect only a moderate 400,000 barrel-per-day decline in Iranian production this year, but tighter sanctions enforcement could lead to a larger drop of 1 million barrels per day, which would push Brent crude to the high $80s by May," Struyven said.

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