US strikes Iran during peace talks as oil tops $100 and diplomats dig in

The shot fired during peace talks

The United States struck missile launch sites and boats attempting to lay mines near Bandar Abbas — a southern Iranian port city that sits directly on the Strait of Hormuz — on Monday night, in what Washington called defensive actions required to protect its troops. [7] It was the first time US forces had attacked Iranian targets since a ceasefire came into effect in early April, ending seven weeks of the first direct US-Iran war, which began on 28 February. [26]

The strikes killed four members of Iran’s Islamic Revolutionary Guard Corps, according to a news outlet believed to be close to former Guard commander Mohsen Rezaei. [26] Explosions were heard across Bandar Abbas; Iranian state media said the situation was “completely under control.” [26]

Iran’s foreign ministry called the attack “an act of bad faith” and “a definitive violation of the ceasefire” and promised it would not leave aggression unanswered. [37] But here is the thing that matters most: Tehran did not walk out of the talks. Iran’s parliamentary speaker and chief negotiator, Mohammad Bagher Ghalibaf, stayed in Doha for a second day, working on how to unlock more than $12 billion in frozen Iranian assets held in foreign banks — including in Qatar — which both sides describe as the last serious dispute before any deal can be signed. [37]

US Secretary of State Marco Rubio, speaking to reporters on his plane in Jaipur, India, said a deal “could take a few days” and insisted the Strait of Hormuz would be open “one way or another.” [7] Trump posted on Truth Social that talks were going “nicely” but warned of fresh attacks if they failed: “It will only be a Great Deal for all, or no Deal at all.” [7]

What is the Strait of Hormuz and why does this matter so much? It is a narrow channel between Iran and Oman — roughly 33 kilometres wide at its narrowest — through which about 20 percent of the world’s oil and natural gas flows. [22] Iran effectively closed it when the war began, demanding ships pay up to $2 million for safe passage. [22] That closure cut 14.4 million barrels of oil a day from global markets. [4] Emergency releases from strategic reserves have plugged part of the gap, but the International Energy Agency has warned the world could hit a “red zone” in July and August, consuming far more than it produces. [4]

Oil responded immediately. Brent crude, the international benchmark, climbed back above $100 a barrel on Tuesday — it had briefly dipped to $95.95 on Monday when traders bet a deal was close. [4][2] Analysts at Rabobank’s Michael Every captured the mood: “It just seems to be this endless loop of Charlie Brown and Lucy with the football. Every single time, it’s ‘oh, this time is the breakthrough.’” [4]

Even if a deal is signed, energy prices are unlikely to fall quickly. Saudi Aramco, the Saudi state oil company, warned that if the strait remains closed for further weeks, “oil supply challenges” would affect the market until next year. [4] The physical infrastructure for restarting Gulf oil exports — pipelines, ports, tanker routes — needs weeks or months to normalise. [5]

The deal being discussed is a memorandum of understanding, not a peace treaty. A memorandum of understanding is a preliminary written agreement — it records what both sides have agreed to in principle, without binding legal force, while a more detailed treaty is negotiated separately. [14] The current draft would: end hostilities on all fronts including Lebanon; give both sides 30 days to restore shipping through Hormuz and lift the US naval blockade; and start a separate 60-day negotiation on Iran’s nuclear programme and sanctions. [14][37] Iran’s position is that nuclear talks cannot begin until the frozen assets are released first. [37]

What we still don’t know: whether Iran’s Supreme Leader Ayatollah Mojtaba Khamenei — who was injured in an Israeli strike on the first day of the war, killing his father, and is reportedly in an undisclosed location — has actually endorsed the deal’s broad template, as US officials claim. [71] The BBC reported that his isolation is making communication with negotiators difficult and slowing the talks. [71]

Trump added a complicating element on Monday by declaring that Saudi Arabia, Qatar, Pakistan, Turkey, Egypt and Jordan should “immediately” sign the Abraham Accords — the US-brokered agreements, first signed in 2020, that normalised diplomatic ties between Arab states and Israel — as a condition of any Iran deal. [77] Saudi Arabia has long said it will only normalise with Israel once there is a clear path to Palestinian statehood. Pakistan does not recognise Israel at all. The demand was not previously on the table. [77]

What this does to every central bank’s plans

The strikes rippled across global markets on Tuesday. European stocks wavered; Germany’s DAX fell 0.7% while London’s FTSE held up better. [2] US futures pointed higher once Wall Street opened after Monday’s Memorial Day holiday, but that was partly driven by AI-related chip stocks rather than Iran optimism. [1]

The bigger story is interest rates. Before this war, most central banks were expected to cut rates in 2026. Now, elevated oil prices are feeding directly into inflation everywhere, and the calculus has reversed. Markets now price a 56% chance the US Federal Reserve will raise rates by December — compared to two cuts expected at the start of the year. [6] Kevin Warsh, who was sworn in as the new Fed chair last Friday, inherits a problem he did not design. [1]

The European Central Bank’s Isabel Schnabel said on Tuesday that the ECB should raise rates in June regardless of whether an Iran deal is struck, because the conflict has lasted far longer than anyone projected and high energy costs are now embedded in the broader economy. [2] Sri Lanka, facing a currency under severe pressure from the oil shock, caught markets off-guard by raising its benchmark rate by a full percentage point in one move — an unusually large jump aimed at stopping the currency slide. [3]

The Bank of Japan said developments in the Middle East will factor into its rate-hike timing. [3] For anyone tracking monetary policy: this is now a synchronised global tightening story driven by a single chokepoint in the Persian Gulf.

Russia escalates, diplomats refuse to move

Russia’s foreign minister, Sergei Lavrov, told Rubio on Monday that foreign nationals and diplomats should evacuate Kyiv because Moscow is planning “systematic strikes” on what it calls Ukraine’s military-industrial infrastructure. [11] Rubio confirmed that Lavrov had warned him Kyiv was “going to be a very dangerous place.” [22] Russia sent the warning to all foreign embassies, not just the American one. [11]

The EU summoned Moscow’s chargé d’affaires in Brussels. Germany summoned Russia’s ambassador in Berlin. [15] The EU’s foreign affairs spokeswoman Anitta Hipper said Russia was “trying to sow panic” and that the EU delegation would stay. [40] Katarina Mathernova, the head of the EU mission in Kyiv, was direct: “Russia wants fear, panic, isolation of Ukraine. It will not work. The EU is not going anywhere.” [11]

UN Secretary-General António Guterres, speaking at a special General Assembly session on proliferating conflicts chaired by China’s foreign minister Wang Yi, said he was “deeply concerned” by Russia’s announcement. [15] He noted that the world now faces the largest number of simultaneous conflicts since the UN was founded in 1945. [15]

Russia’s warning follows its largest recent bombardment of Kyiv: nearly 600 drones and 90 missiles last weekend, killing at least four and injuring 91. [11] The attack included a hypersonic Oreshnik missile — a weapon fitted with six warheads and travelling at speeds that make interception extremely difficult. Thirty-five missiles hit their targets despite Ukraine’s air defences. [29]

Military analysts say Russia’s escalating rhetoric reflects pressure from within. The BBC’s defence correspondent, reporting from Kyiv, quoted Ivan Stupak, a former Ukrainian intelligence officer, saying: “When you have problems with the economy and Russian society, then there’s pressure for revenge.” [29] The Washington-based Institute for the Study of War assessed that “the character of the war is shifting in favour of Ukrainian forces — at least for now,” with Russia losing more soldiers than it can recruit each month. [29]

Russia’s own industry is feeling the strain. The head of Russia’s most powerful business lobby told Putin in a direct meeting that companies need not just the AK-47s they have been authorised to carry, but heavier weapons and electronic warfare systems to protect factories from Ukrainian drone strikes. He asked for a fund to finance those purchases. [79]

The other fronts that haven’t stopped

Israel expanded its ground operation in Lebanon on Tuesday, moving beyond the self-declared “Yellow Line” it had set up roughly 10 kilometres inside Lebanese territory after an April ceasefire with Hezbollah, the Iran-backed Lebanese armed group. [10] The Israeli military said the move was aimed at removing Hezbollah’s drone threat, while acknowledging there is still “no comprehensive solution” to the threat posed by the group’s explosive drones — particularly fibre-optic guided models that are harder to jam. [83] Lebanon said 28 people were killed in Israeli strikes over the preceding 24 hours. [83]

In Gaza, Israel said it targeted Mohammed Odeh, the new head of Hamas’s armed wing — just 11 days after Israel killed his predecessor. [36] The outcome of the strike was not immediately confirmed. Netanyahu and Defence Minister Israel Katz vowed to “continue pursuing everyone who took part in the Oct. 7 massacre.” [32]

Iran began restoring its internet, which has been almost entirely blacked out since the war began in late February. Vice President Mohammad Reza Aref announced the first steps toward reopening international access. [10]

From New Delhi to Doha: three other things that moved

The Quad met in India. The foreign ministers of Australia, India, Japan and the US — the Quad, a four-country security grouping focused on the Indo-Pacific region — gathered in New Delhi and announced a joint port infrastructure project in Fiji and a critical minerals framework. [62] The minerals pact is particularly significant for Japan, after China halted shipments of rare minerals used in aerospace, defence and semiconductors following a diplomatic dispute. [62] China’s foreign ministry said Quad cooperation “should not target any third party.” [61]

Senegal’s political crisis deepened. Ousmane Sonko — who was sacked as prime minister last Friday by President Bassirou Diomaye Faye — was elected speaker of the national assembly on Tuesday. [53] Sonko’s party, Pastef, holds a majority of parliamentary seats. As speaker, the second-highest political position in the country, Sonko can now block Faye’s legislative agenda, but the president cannot dissolve parliament until at least two years after the last election — meaning they are effectively locked together until late 2026. [53] The rift centres partly on the size of Senegal’s public debt, now at 132% of GDP, and how closely to follow IMF austerity guidance. [53]

BP sacked its chairman. The British oil giant BP ousted its board chair over unspecified “conduct” issues. [12] The company is already under pressure from investors over its energy transition strategy. A leadership shake at the top of one of the world’s largest oil companies, at a moment when oil revenues are surging due to the Iran war, adds another layer of instability to an already turbulent sector.

The story nobody’s covering

The African Development Bank, meeting in Brazzaville, the capital of the Republic of the Congo, published its annual economic outlook for the continent on Tuesday. It cut Africa’s 2026 growth forecast to 4.2% — down from 4.4% last year — specifically because Middle East oil and food price shocks are eating into household budgets and public finances across the continent. [50] East Africa, the fastest-growing sub-region, is forecast to slow by more than half a percentage point.

The bank’s president, Sidi Ould Tah, said Africa needs annual growth above 7% sustained for decades to lift people out of poverty and create enough jobs. [50] Instead, a conflict in a waterway thousands of kilometres away is quietly draining the growth that 54 countries were counting on. That feedback loop — from the Strait of Hormuz to African food security — is largely absent from the coverage of the Iran war.