U.S.-Iran Relations Deteriorate Amid New Conflicts
The United States and Iran exchanged new strikes early Thursday, accusing each other of violating their fragile cease-fire agreement. This came hours after President Trump suggested the cease-fire might be over.
The U.S. military executed another round of strikes aimed at weakening Iran’s capacity to attack commercial ships in the Strait of Hormuz. U.S. forces targeted approximately 90 sites in Iran, including missile and drone storage facilities and air defenses, as stated by U.S. Central Command.
In response, Iran’s military launched drone and missile strikes on American bases in Kuwait and Bahrain. The Islamic Revolutionary Guards Corps warned that further U.S. strikes would lead to expanded retaliations against other American bases in the region.
No immediate reports of damage from Kuwait or Bahrain were available. Kuwait’s military acknowledged responding to the attacks, while Bahrain’s military reported intercepting and destroying drones and missiles.
In Iran, authorities reported that U.S. strikes disrupted a railway connection between Tehran and Mashhad. As the days-long funeral for Ayatollah Ali Khamenei continues, busses have been arranged to transport stranded passengers to their destinations.
Impact on Global Oil Markets
Oil prices surged following the renewed hostilities. Brent crude rose over 1 percent to approximately $79 per barrel, while West Texas Intermediate reached $74 a barrel. This marks an increase from pre-conflict levels of around $70.
Gasoline prices in the U.S. increased to an average of $3.80 per gallon, a significant increase since the conflict’s onset. Commodity strategists at ING suggest the market underestimated the risks surrounding the agreement.
Traffic Through the Strait of Hormuz
Ship traffic through the Strait of Hormuz remains disrupted. Despite some recovery, the volume remains below pre-war levels. Iran insists ships use routes under its control, while the U.S. Navy provides guidance through alternative routes.
Ben May from Oxford Economics notes that prolonged disruptions are not in the interest of either country. The cease-fire remains fragile, with potential impacts on global oil prices.
Market Reactions to the Conflict
Investors are concerned about inflation and the impact of rising oil prices. The S&P 500 futures indicate volatility in stock markets, while bond yields have climbed to their highest levels since May.
The Federal Reserve has signaled potential interest rate hikes if inflation persists, as noted in recent minutes from their meetings.
The International Monetary Fund recently downgraded its global economic growth forecast, reflecting concerns about the ongoing conflict.
Analysis of Iran’s Strategy
“Revenue is subordinate to control.” – Majid Shakeri, Iranian economist
Iran risks overplaying its hand by attacking oil tankers, which analysts warn could reignite a major war with the United States. Both countries threaten to abandon the Memorandum of Understanding signed in June, aimed at establishing peace talks.
The United States has launched intensive attacks, while Iran plans further strikes on American allies in the Persian Gulf. The M.O.U.’s vague provisions leave crucial issues unresolved, such as Iran’s nuclear program and control over the Strait of Hormuz commercial shipping.
Iran’s perception of superiority in the early conflict stages and the recent burial ceremonies for Ayatollah Khamenei underscore its aggressive stance.
Internal Divides in Iran
Political divisions within Iran have grown, with factions disagreeing on negotiations with the U.S. President Masoud Pezeshkian accuses the United States of misconduct, while hard-liners oppose any deal with Washington.
Amid funeral ceremonies for Ayatollah Khamenei, tensions escalated, leading to personal attacks on officials favoring dialogue. Meanwhile, American airstrikes prompted Iran’s Revolutionary Guards to target U.S. bases.
Iran maintains its determination to retaliate against American strikes, with internal political circles undecided on future actions.
Closure
Despite continued hostility, President Trump suggests Iran remains interested in negotiations. Ayatollah Khamenei will be buried in Mashhad, amid widespread public mourning.