Iran's foreign minister stated on Wednesday that Tehran is reviewing a U.S. proposal to end the ongoing conflict in the Middle East but has no intention of holding direct talks with Washington, and has rejected a U.S. ceasefire offer, instead proposing a five-point plan that includes sovereign control over the Strait of Hormuz [1][2][3]. The Trump administration reportedly presented Iran with a 15-point peace proposal, conveyed through Pakistan, aiming to facilitate a one-month ceasefire and open formal negotiations, but Iranian officials signaled unwillingness to engage in talks and indicated rejection of the ceasefire [2][3]. Iran's mission to the United Nations clarified that 'non-hostile vessels' would be allowed passage through the Strait of Hormuz, which remains effectively closed, maintaining a geopolitical risk premium on oil prices [1][3].
WTI crude oil prices consolidated around $90.50 during the Asian session on Thursday, remaining within a three-day range as traders assessed prospects for de-escalation in the Middle East [1]. The deployment of additional U.S. troops in the region and ongoing pressure on Iranian energy infrastructure contributed to a rise in oil prices on Wednesday, though traders are cautious and awaiting further developments [1]. The surge in energy prices is expected to rekindle inflation, prompting the U.S. Federal Reserve to potentially adopt a more hawkish stance, which has strengthened the U.S. Dollar and limited further gains in oil prices [1].
Wall Street responded to the developments with a rebound in stocks on Wednesday, reflecting hopes that Washington and Tehran could eventually reach a ceasefire agreement, though sentiment remains cautious due to heightened recession risks and geopolitical uncertainty [3]. Moody's Analytics raised its probability of a U.S. recession in the next 12 months to 48.6%, while Goldman Sachs increased its estimate to 30% [3]. U.S. stock futures were little changed early Thursday, and oil prices pulled back slightly after Wednesday's jump [3].
The broader economic impact is evident, with the U.S. Postal Service seeking a temporary 8% fuel surcharge on package deliveries to offset rising transportation costs, and Thailand abandoning its domestic fuel price cap in favor of targeted assistance for sectors affected by higher energy costs [3]. ECB policymaker Olaf Sleijpen warned that rising energy prices could feed into broader inflation more quickly than during the 2022 energy crisis, and emphasized that policymakers are prepared to respond if second-round inflationary effects become evident [2].
Market participants are advised to monitor ongoing U.S.-Iran negotiations and ECB signals regarding inflation and monetary policy, as these developments could significantly impact USD sentiment, risk assets, and the direction of EUR/USD, which is currently trading around 1.1560, steady after previous losses [2].
CONCLUSION
Iran's review of the U.S. peace proposal, coupled with its rejection of a ceasefire and demand for control over the Strait of Hormuz, has heightened geopolitical risks and contributed to elevated oil prices and inflation concerns. Market reactions have been mixed, with a temporary rebound in stocks but increased recession risk assessments and cautious sentiment prevailing. The situation remains fluid, and further developments in diplomatic negotiations and energy prices will be critical for global markets.