A new US intelligence assessment concludes that Washington and Tehran are now 'locked in an indefinite state' between peace and conflict, according to The Washington Post. The assessment, prepared primarily by the CIA and submitted to the Trump administration, comes as fighting has intensified following the collapse of a fragile truce earlier this month. The report says both sides appear unlikely to back down, pointing to a prolonged period of instability in the Middle East. US officials believe the conflict has reached a stalemate, while further escalation — including the possible deployment of ground troops — would carry significant political risks for Trump without guaranteeing military success. Despite the ongoing conflict, both Washington and Tehran have continued to signal a willingness to pursue diplomacy, with Iranian Foreign Ministry spokesperson Esmaeil Baghaei confirming that mediators have been active in recent days and ideas have been conveyed by certain mediators.
US President Donald Trump is approaching a decisive juncture in the Iran war, with American and Israeli officials weighing only two viable paths forward, according to Axios. The first option involves a new ten-day ceasefire aimed at reopening the Strait of Hormuz, while the second involves a full-scale joint military campaign with Israel to force Tehran's capitulation. Trump has not yet made a decision, though officials believe the coming days will determine which path prevails, as reported by Axios citing two regional sources with direct knowledge of the matter. Qatar, Egypt, Pakistan and other regional mediators have reportedly presented Washington and Tehran with a proposal for a ten-day truce, with the Trump administration exploring the proposal and urging Israel to avoid steps that could close the diplomatic window. Under the proposed ceasefire, both the southern route through Omani waters and the northern route through Iranian waters would reportedly reopen, with Washington and Tehran negotiating longer-term arrangements on transit fees, potentially modelled on the Strait of Malacca.
Oil prices briefly crossed $100 a barrel over the weekend as Iran widened strikes on shipping and Gulf infrastructure, according to Axios. Brent crude was trading below $89 per barrel after gaining nearly 6% over the prior two sessions, while West Texas Intermediate was trading around $83 per barrel, according to CNBC TV18. Ten consecutive nights of American bombing have reportedly failed to break Iran's grip on the Strait of Hormuz, as at least three US service members have been killed in the renewed fighting. The US military destroyed military command centres, air defence and coastal surveillance sites, maritime capabilities, missile and drone launch sites, and communications networks in strategic targeted attacks. Latest reports from CNN showed that a US military service member was killed in action during a controlled detonation of a downed Iranian drone, marking the third death on the American side after two service members lost their lives in Jordan last week. The military also said "unidentified remains" found on Sunday were being examined after one service member went missing following Friday's attack in Jordan, bringing the total US service members killed since the conflict began to 17.
On Monday, the Iran-backed Houthis said they are imposing a ban on maritime traffic from Saudi Arabia, threatening the Red Sea route which allows the latter to export millions of barrels of crude via a cross-country pipeline that bypasses the Strait of Hormuz, according to CNBC TV18. The Saudi Foreign Ministry said it will take all required measures to protect the ships in accordance with international law. The growing hostilities have significantly disrupted shipping through the Strait of Hormuz, a key maritime route that normally carries around one-fifth of global oil trade. LSEG data showed only four vessels passed through the route on Sunday, compared with eight a day earlier, as reported by The Times of India. Since Friday, three oil products tankers and one Very Large Crude Carrier have entered the strait to load crude, indicating continued but reduced commercial activity. The US said it was enforcing a naval blockade on Iranian ports, while Iran has maintained that it is targeting ships that violate its navigation rules in the strategic waterway. The US military has been urging commercial vessels to follow a route closer to Oman while transiting the strait, but Iran has responded by attacking ships using that route, insisting it should control navigation through the waterway.
The situation in Hormuz has deteriorated significantly with maritime traffic through the strait slowing sharply after Iranian attacks on commercial vessels over the weekend, according to Bloomberg. Tanker operator Dynacom Tankers said two of its vessels—a supertanker and a smaller fuel tanker—were struck in the waterway. Separately, UK Maritime Trade Operations reported another tanker had been hit by an unidentified projectile northeast of Oman, though it remains unclear whether the incident is linked. The heightened risks have prompted shipowners to offer hefty incentives to crews willing to sail through the region. According to Bloomberg, Sinokor Group, one of the world's largest supertanker owners, is offering seafarers an additional six months' salary for completing a return voyage through Hormuz. Iranian media reported that US forces struck Qeshm Island in the Persian Gulf as well as areas around the southern city of Shadegan. More than 100 communications towers were reportedly knocked offline in Hormozgan, disrupting internet, mobile and fixed-line services, with Iranian attacks targeting US and allied facilities across the region.
The oil price surge is creating significant implications for Federal Reserve policy, with hike odds for the July 28-29 meeting doubling to 36% from 18% in early July, according to CME FedWatch data. The 10-year Treasury yield sits near 4.55%, close to a two-month high, as bonds fell alongside the oil jump. US prices fell 0.4% in June, the biggest monthly drop since April 2020, because energy got 5.7% cheaper, but oil at $100 runs that math in reverse. New Fed Chair Kevin Warsh, who held rates steady in June, stated at a central-bank forum in Portugal on July 1 that "Prices are too high." Nine of his 18 colleagues see higher rates this year, with traders now positioning for a potential hike if oil holds above $100. The Federal Reserve is already leaning hawkish, making the oil shock a significant factor in monetary policy considerations. Oil prices have rallied 40% in the last six months in the global market, with Brent crude oil prices surging 8.5% in the last five trading sessions and rising 13% in the last one-month period amid the fresh round of attacks between the two countries.
Despite the growing security risks, oil prices have not extended their rally as markets continue to watch diplomatic developments closely, according to Reuters. Iranian Foreign Ministry spokesperson Esmail Baghaei confirmed on Monday that mediators were working to prevent further escalation, as reported by Axios. Iran has said mediators are exploring proposals to ease hostilities, while Reuters reported discussions around a possible 10-day ceasefire. Oil prices steadied on Tuesday after a sharp two-day rally, as traders balanced mounting geopolitical risks in the Middle East against renewed diplomatic efforts to de-escalate the conflict between the US and Iran, as reported by NDTV Profit. The question facing the Sunday futures open is whether the market still believes the next US strike package will be finite, with markets having become accustomed to violent headlines that stop just short of the worst outcome. A sustained energy shock would push inflation expectations higher, complicate the rate outlook and pressure long-duration assets, as equities would have to absorb higher input costs, tighter financial conditions and a geopolitical risk premium that can no longer be dismissed as temporary. Credit spreads would become increasingly important if shipping, insurance and supply chains begin to fracture, with the dollar remaining the cleanest gauge of whether the market sees a regional energy shock or something more systemic.
