Oil prices rise amid US-Iran tensions and US-India trade deal

Wednesday 04 - 17:20

By: Dakir Madiha

Oil prices rise amid US-Iran tensions and US-India trade deal

Oil prices rebounded Tuesday after Monday's volatile session as traders assessed a historic US-India trade agreement potentially reshaping global energy flows and squeezing Russian oil revenues. Brent crude futures climbed nearly 2 percent, recovering from a 4 percent drop the previous day, while West Texas Intermediate edged toward $64 per barrel.

The rally coincided with renewed geopolitical friction between Washington and Tehran. A US Navy fighter jet downed an Iranian drone that approached the USS Abraham Lincoln carrier aggressively in the Arabian Sea.

President Donald Trump announced Monday that the US would slash tariffs on Indian goods from 50 percent to 18 percent. In exchange, India agreed to halt Russian oil purchases and boost imports from the US and possibly Venezuela.

India ranks among Russia's top crude buyers since the 2022 Ukraine war, peaking at 2 million barrels per day. Analysts warn losing this market would force Moscow to redirect volumes to China at deeper discounts, likely prompting production cuts. "Any further reduction would already be significant, as there's only one main alternative buyer, China, which also faces constraints taking sanctioned crude," said David Wech of Vortexa. "Pressure on Russia intensifies as discounts widen and fewer buyers stomach the risk."

Tuesday's price gains also stemmed from the drone incident near the Abraham Lincoln, hours before Iranian speedboats neared a US-flagged tanker in the Strait of Hormuz. These events preceded scheduled talks Friday in Istanbul between US envoy Steve Witkoff and Iranian Foreign Minister Abbas Araghchi.

Gains tempered after Trump noted Iran was holding "serious" discussions with Washington, suggesting nuclear program negotiations might avert military action. "Right now we're talking to them. We're talking to Iran, and if we could make a deal, that would be great," Trump said.

The US-India pact combined with Middle East tensions injects fresh uncertainty into oil markets. Reuters notes the deal could tighten global supply, though Indian refiners haven't confirmed immediately halting all Russian imports, with some cargoes booked through March. Oxford Economics analyst Alexandra Hermann pointed out US crude can't directly replace Russian grades due to quality differences, making Saudi Arabia, UAE and Iraq likelier substitutes.