On Monday, crude oil prices surged after Iran announced it would halt message exchanges with the United States and threatened to 'completely' close the Strait of Hormuz, according to state-affiliated outlet Tasnim. This move was triggered by Israel's expanded operations in Lebanon against Hezbollah, with Tehran insisting that no dialogue would resume until Israel withdraws fully and halts attacks in Lebanon and Gaza. The Strait of Hormuz has been largely shut to international shipping for months, so the pledge to 'completely' close it was interpreted as a louder version of the existing situation. The draft memorandum of understanding (MOU) between the US and Iran was still awaiting sign-off from President Donald Trump and the newly installed Ayatollah Mojtaba Khamenei, who has not appeared in public since his appointment. Washington had recently tightened its terms on enriched uranium and the strait, indicating that the deal was never as finalized as market action in May suggested [2].
West Texas Intermediate (WTI) crude oil opened near $88.00, which was the day's low, then surged to a high close to $93.00 before settling near $91.00. This price action reflected the market's repricing of conflict risk after Tehran's announcement, reversing the war premium that had been bleeding out during May on the assumption that a US-Iran deal was imminent [2].
Meanwhile, the US Dollar Index (DXY) rose toward the 99.20 region on Monday, supported by stronger-than-expected US manufacturing data. The ISM Manufacturing PMI increased to 54 in May from 52.7, beating expectations of 53, while the Employment Index improved to 48.6. The US Dollar was the strongest against the New Zealand Dollar, up 0.88%, and also gained against other major currencies such as the Japanese Yen (+0.27%), Canadian Dollar (+0.28%), and Swiss Franc (+0.71%). EUR/USD stumbled near 1.1630, pressured by broad US Dollar strength, while USD/JPY advanced toward 159.70, supported by higher US yields and resilient US economic data [1].
Official statements from both sides were contradictory: Iran claimed talks were off and threatened further action, while President Trump stated that no US troops would be sent to Beirut and that Hezbollah had agreed to stop all shooting. The White House maintained that negotiations were 'continuing at a rapid pace,' advising the public to 'sit back and relax' because 'it always works out.' Trump also commented that it was 'fine if they're done talking' and that Iranians are 'better negotiators than they are fighters.' This divergence in messaging left the market to reconcile two accounts that cannot both be true, reinforcing the return of the war premium to oil prices [1][2].
CONCLUSION
The breakdown in US-Iran negotiations and conflicting official statements triggered a sharp rally in crude oil prices and strengthened the US Dollar, as markets reassessed geopolitical risks. Strong US manufacturing data further supported the Dollar's gains. The ongoing uncertainty and contradictory messaging from both sides suggest continued volatility in oil and currency markets.