Iran ceases negotiations with the US and threaten complete closure of Strait of Hormuz, oil prices surge

Iran has stated today via its government news agencies that it has immediately suspended all indirect conversations with the U.S. and will now proceed to completely block the Strait of Hormuz, a decision that has caused a surge in crude oil prices.

The West Asian gulf state has also said it would block the Bab el-Mandeb strait in addition, another chokepoint that could further worsen crude oil delivery channels and sea transport.

Iran U.S. ceasefire broke under strain

Fresh airstrikes over the weekend had further strained the ceasefire that has held since early April. US forces struck radar and drone sites in Iran after Tehran shot down a US drone, Yahoo Finance reported. Israeli Prime Minister Benjamin Netanyahu then declared his forces’ capture of Beaufort Castle in southern Lebanon as a turning point in the ground offensive against Hezbollah.

This breakdown in negotiations therefore comes as no surprise, even though hours before U.S. President Donald Trump posted on the Truth Social app that Iran “really wants to make a deal,” urging critics to “just sit back and relax, it will all work out well in the end.”

Axios, citing unnamed US officials, had also reported over the weekend that Trump rejected the terms his envoys had previously reached with Iranian intermediaries, with enriched uranium stockpiles remaining a key sticking point.

The conflict in Lebanon has also continued to escalate. According to Lebanon’s health ministry, 3,355 people have been killed since the Israeli offensive began on March 2. The Israeli military issued an evacuation warning today to residents of Dahiyeh, a southern Beirut suburb, warning of strikes against Hezbollah targets if rocket fire into Israel continued.

Tehran’s Bab el-Mandeb threat

Beyond the Strait of Hormuz, which handles about 20% of the world’s crude oil shipments, Iran has said it would also activate its Houthi allies in Yemen towards a closure of the Bab el-Mandeb strait, a chokepoint connecting the Red Sea to the Gulf of Aden. Iran news agencies framed the move as an effort to “punish” Israel and its supporters for ongoing operations in Lebanon.

The Houthis have largely stayed out of the Iran war since US and Israeli strikes against Iran began in late February, though their leaders have previously warned that they could engage. The International Transport Forum estimates that around 14% of global maritime trade passes through the Bab el-Mandeb in peacetime.

Oil prices surge

WTI futures rose by 7.5% to just under $94 per barrel, while Brent crude gained 6.5% to trade above $97. Both benchmarks clawed back a portion of last week’s steep losses, when reports of a potential US-Iran deal had driven Brent down by a massive 11.1% and WTI down 9.6%.

The crude oil price spike follows the end of diplomatic conversations between the warring countries. Iranian negotiators have attributed the decision to Israel’s military campaign against Hezbollah in Lebanon, which Tehran considers a violation of the ceasefire framework between Washington and the Iranian state. State-affiliated Iranian news agency Tasnim stated that “as long as Iran’s and the resistance front’s position on these issues is not addressed, there will be no talks.”

US gasoline prices averaged $4.32 per gallon nationally on Monday, down from $4.50 a week ago. The closure of the Strait of Hormuz has cut off over 1 billion barrels of oil since the war began, and the US has helped roughly 70 ships exit the channel in the past three weeks, far below the pre-war pace of about 120 crossings per day.

The market now faces another cycle due to collapsed talks after weeks of signals from both sides that a deal was well within reach.

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