Trump threatens to destroy Iran nuclear site as oil drops 7% on deal hopes

President Donald Trump threatened to destroy Iran's underground "Pickaxe Mountain" nuclear facility south of Natanz if no deal is reached, warning the US would resume military strikes as oil markets priced in renewed supply disruption risks.

Trump said the US holds a "very strong position" on Iran and threatened to destroy the facility if talks fail, sending Brent crude futures lower as traders weighed ceasefire risks against a potential return to hostilities.

"If they don't work out, we will go back to very strong military action," Trump told Axios, adding that he has "plenty of time" for diplomacy but that any deal must move fast.

Brent crude fell 6.8% to $85.49 a barrel Monday and US benchmark crude dropped 7% to $83.06 as the US paused strikes on Iran for a third consecutive day. The lull followed 13 straight nights of US bombardment that began after a ceasefire collapsed in early July. Iran's military said it "will not leave any threats unanswered," while the country's Revolutionary Guard turned back six vessels attempting to transit the Strait of Hormuz through unauthorized routes.

The Strait of Hormuz handles about 21% of global oil trade, and Iran has effectively blockaded the waterway since late February. With the US Strategic Petroleum Reserve drawn down to about 246 million barrels — and the Department of Energy claiming the operational minimum could go as low as 70 million — the margin for supply disruption has narrowed considerably.

Oil Markets Price In Ceasefire Premium, But Risks Remain Elevated

The relief rally in crude markets reflected optimism that diplomatic channels could reopen after weeks of escalating exchanges. Mediators led by Qatar and Pakistan have made "significant" progress toward bringing the US and Iran back to negotiations, the Associated Press reported, citing regional officials. Iran confirmed ongoing talks with Oman focused on creating a mechanism to manage vessel passage through the Strait of Hormuz.

But the underlying supply picture remains fragile. Shipping through the Bab el-Mandeb Strait, the southern gateway to the Red Sea, dropped to its lowest level in months after Iran-backed Houthi rebels in Yemen traded fire with Saudi Arabia and imposed a blockade on Saudi ports. Several tankers carrying Saudi crude through the Red Sea turned around this week as the Houthis broadcast radio warnings to ships.

The last time the US and Iran were in direct conflict in late February, Brent crude surged past $100 a barrel within weeks. The current pause in fighting has already begun to unwind some of that risk premium, but Trump's latest threats suggest the window for diplomacy may be narrow.

Supply Chain Costs Surge as Insurance Markets Tighten

The disruption has cascaded beyond crude prices. Lloyd's Market Association, the group representing maritime insurance underwriters, issued a new clause Thursday allowing insurers to cancel policies for ships that pay tolls to Iran to transit the Strait of Hormuz. Spot rates for very large crude carriers and suezmax shipments have surged as the volume of product moving through the Red Sea, Strait of Hormuz, and Black Sea has declined.

"The various tanker markets are interacting with each other," wrote Lloyd's List analyst Greg Miller. "Everything is connected in ocean shipping."

The US has not launched strikes on Iran since Thursday night, and Trump expressed optimism Monday about diplomatic efforts. But he also warned that if the US and Iran cannot reach a deal, "we go back to doing what we were doing" — striking Iran. Israeli Prime Minister Benjamin Netanyahu arrived in Washington Tuesday for his first in-person meeting with Trump since the war began, with Iran at the top of the agenda.

This article is for informational purposes only and does not constitute investment advice.