Dollar Inches Higher as Markets Brace for Iran’s Next Move Amid Geopolitical Tension

Economic

Summary:

The U.S. dollar firmed slightly on Monday, reflecting cautious risk sentiment as investors awaited Iran’s response to American airstrikes. Despite soaring oil prices and regional uncertainty, currency market reactions remained muted..

Markets in Limbo Amid Geopolitical Shock

Following the U.S. airstrikes on Iran’s nuclear sites over the weekend, global financial markets opened the week with a mix of guarded moves. The dollar showed modest gains against major currencies, while oil surged to a five-month high and equities retreated globally. Investors are clearly in wait-and-see mode, absorbing the gravity of the U.S.-Iran conflict while resisting overreaction—at least for now.

The dollar index rose 0.12% to 99.037, underpinned by a 0.25% gain against the Japanese yen and a 0.33% decline in the euro. The Australian dollar, viewed as a risk-sensitive currency, weakened 0.2% to $0.6437, reflecting market aversion to risk exposure. Sterling and the New Zealand dollar also declined.

Currency Markets Signal Contained Panic—For Now

According to Carol Kong of the Commonwealth Bank of Australia, investors are more concerned about the inflationary effects of the rising oil prices than about immediate economic disruption. That explains the muted flight to safety, as markets hope the latest military action remains limited and does not evolve into a broader regional war.

The cautious tone was reinforced by Saxo Bank strategist Charu Chanana, who noted that current haven flows remain restrained, reflecting an assumption that this is a tactical escalation rather than a prelude to systemic disruption in global oil supply or trade.

Still, safe-haven currencies like the Japanese yen and the U.S. dollar are likely to benefit if the conflict worsens. The potential closure of the Strait of Hormuz—a strategic chokepoint for nearly a quarter of global oil flows—would dramatically shift risk pricing in all asset classes, including currencies.

Oil’s Surge Highlights Real Inflation Threat

While forex markets remain somewhat subdued, energy markets are not. Oil jumped to its highest level since January as traders braced for supply shocks, especially after Iran’s parliament approved a move to close the Strait of Hormuz in retaliation. The closure, if carried out, would severely limit shipments from Saudi Arabia, Kuwait, Iraq, and Iran, exacerbating global inflation pressures.

These inflationary concerns also have potential feedback loops into monetary policy, especially in economies like the U.S., where central bank interest rate decisions are finely balanced between inflation control and growth support.

Dollar Outlook: Caught Between Geopolitical Safety and Domestic Risk

Despite Monday’s gains, the U.S. dollar is still down 8.6% year-to-date, reflecting broader concerns about domestic growth headwinds, particularly stemming from President Trump’s aggressive tariff policies. Investors remain hesitant to fully embrace the dollar given the uncertainty surrounding trade policy, fiscal tensions, and Trump’s unpredictable geopolitical decision-making.

This explains why the dollar’s ascent, although present, lacks conviction. A sustained move higher would likely require confirmation of either further escalation in the Middle East or signs of financial market distress globally.

In the digital asset market, Bitcoin rose 1.3% and Ether rebounded 2.3% on Monday after both experienced sharp losses on Sunday. While cryptocurrencies remain volatile, their relative resilience indicates speculative investors may also be positioning for broader financial instability.

Monday’s market reaction reveals a landscape suspended in anticipation. While the dollar has found some footing as a haven, broader movements are measured, not panicked. The world is now watching Tehran’s next move. Should Iran proceed with closing the Strait of Hormuz or retaliate directly, the fragile equilibrium holding back broader market panic could quickly unravel—sending oil, currencies, and global risk assets into much more dramatic territory.

Source: Reuters

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Political

Contradiction Between Words and War

Just five months after declaring peace a hallmark of his presidency during his January 2025 inauguration, Trump has overseen a major escalation in Middle East tensions. His remarks then — “We will measure our success… by the wars we never get into” — now stand in stark contrast to his decision to bomb three Iranian nuclear sites: Fordow, Natanz, and Isfahan. The airstrikes mark the first direct U.S. military engagement against Iran since the Israel-Iran conflict erupted earlier in June.

This sudden shift from diplomatic patience to military aggression has put Trump’s carefully cultivated image as a conflict-averse leader into question. His previous pledges to prevent World War III and end Middle East chaos, often repeated on the campaign trail, now appear undermined by his administration’s forceful intervention.

Strategic Shift or Political Whiplash?

Only two days before the attack, Trump publicly claimed the U.S. would wait “two weeks” before deciding on a course of action in response to Israel’s initial strikes on Iran. That posture of restraint quickly vanished. On Saturday night, he confirmed via Truth Social that the U.S. had dropped a “full load of BOMBS” on Iran’s key nuclear site at Fordow. This abrupt pivot left observers questioning the reliability and coherence of U.S. foreign policy under Trump’s second term.

While the administration argues that preventing Iran from obtaining a nuclear weapon remains consistent with Trump’s long-held views, critics contend that the means of achieving that end have dramatically shifted. Trump once described his 2018 withdrawal from the JCPOA as a diplomatic maneuver to exert pressure on Tehran. But Saturday’s military action veers into territory he had pledged to avoid: direct conflict.

Legacy of the Abraham Accords Under Strain

Trump has frequently pointed to the 2020 Abraham Accords as a crowning foreign policy achievement—normalizing relations between Israel and several Arab nations without resorting to military pressure. His assertion at rallies that he “wants peace in the Middle East” and had already delivered it through diplomacy is now being overshadowed by his willingness to engage militarily.

The new conflict raises concerns over whether the fragile framework of cooperation built through the Accords can withstand the fallout. Regional stability, especially among Gulf states wary of a full-scale war, is once again in doubt.

From Diplomacy to Uncertainty

Despite the sharp rhetoric, Iranian officials have not yet signaled how they will respond. Foreign Minister Abbas Araghchi dismissed the idea of diplomacy, stating the U.S. only “understands the language of force,” though he did not commit to specific retaliatory measures. Meanwhile, Iran’s Supreme National Security Council is considering a possible closure of the Strait of Hormuz, which could provoke a global energy crisis and further inflame tensions.

Trump’s defenders argue that the strikes were necessary to halt Iran’s nuclear development and prevent future conflict. But critics warn the immediate consequence may be a deeper entanglement with Tehran, loss of diplomatic leverage, and the undermining of Trump’s own “America First” foreign policy doctrine.

President Trump’s decision to strike Iran may have tactical merit in the eyes of military hawks, but it has undoubtedly eroded the foundations of his peace-focused narrative. Whether this action signals a limited deterrent strike or the beginning of a prolonged conflict remains to be seen. What is clear, however, is that Trump’s once-prized identity as a non-interventionist leader has been fundamentally shaken—raising new questions about how the U.S. defines and pursues peace in a volatile Middle East.

Source: CNBC

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Forex

Economic

Dollar Strengthens on Safe-Haven Flows, But Caution Persists

Following the U.S. strikes on Iranian nuclear facilities, the dollar registered modest gains against major currencies in early Monday trading, supported by investors seeking safety. The greenback rose slightly against the euro and other Asian peers, reflecting increased risk aversion. U.S. equity futures slipped, while crude oil futures climbed as concerns over energy disruptions mounted. Treasury yields, after a brief dip, ticked higher on inflation concerns.

Despite this movement, analysts characterize the reaction as measured. As Diego Fernandez of A&G Banco noted, “The world may be a safer place without the Iranian nuclear threat, but we still need to see the Iranian reaction.” The dollar’s rise, though limited, reflects the return of its traditional safe-haven appeal during times of geopolitical stress.

Markets React to Threats but Wait for Escalation Signal

Iran has threatened “everlasting consequences” and stated that “all options are on the table,” yet has not specified a response. Most notably, the Iranian parliament urged the closure of the Strait of Hormuz, through which roughly 20% of global oil and gas exports flow. However, the final decision lies with Iran’s Supreme National Security Council.

Vice President JD Vance called such a move “suicidal,” given Iran’s dependence on the strait for its own oil exports. Secretary of State Marco Rubio similarly warned against the economic and strategic costs of such action. Analysts like Javier Blas and Noam Raydan echoed this view, suggesting Iran’s threats are likely rhetorical — intended to rattle markets rather than trigger outright closure.

Oil Surges but Remains Below Crisis Thresholds

Oil prices surged as markets opened in Asia, with Brent briefly spiking 5.7% to $81.40 per barrel before retreating. While the gains were meaningful, they remained below crisis levels. Morgan Stanley analysts suggested that if tensions de-escalate quickly, oil could return to the $60s per barrel. But if supply is disrupted — especially through the Strait — prices could rise significantly higher.

Such a rise would likely accelerate global inflation and force central banks, particularly the U.S. Federal Reserve, to reassess interest rate paths. JP Morgan warned that a blockade of the Strait of Hormuz could push oil above $120 and U.S. inflation near 5%, an outcome that would likely alter bond and currency markets significantly.

Equities Stay Resilient Amid Uncertainty

Despite geopolitical stress, equities remain relatively stable. The S&P 500 is down just 3% from recent highs, and broader global indices have seen only modest pullbacks. Strategists at Societe Generale and UBS argue that today’s markets are better positioned to absorb shocks than during past oil crises, thanks to more accommodative central bank policies and subdued investor exuberance.

Nonetheless, equity downside remains possible if the conflict escalates. Analysts from Barclays and Liquidnet suggest that while any oil shock may be short-lived, prolonged tensions could trigger risk-off behavior, especially in European and emerging markets that are more exposed to energy supply shocks and capital outflows.

Mixed Outlook for Treasuries and Inflation Risk

U.S. Treasuries are experiencing mixed signals. While some investors are rotating into bonds for safety, rising oil prices complicate inflation forecasts, limiting the Fed’s flexibility. The 10-year Treasury yield rose slightly to 4.38%, with analysts watching inflation-linked data closely. Jason Schenker from Prestige Economics noted that conflicting forces — rising inflation versus safe-haven buying — could keep bond markets volatile.

Although the dollar has regained some of its safe-haven role, strategists question whether the rally is sustainable. Neil Birrell of Premier Miton Investors noted that while the greenback is unpopular in recent positioning, geopolitical pressure could reverse sentiment. Viraj Patel at Vanda Research sees a potential “pain trade” brewing, as crowded short-dollar bets may unwind if volatility persists.

Still, longer-term challenges for the dollar remain. Charu Chanana of Saxo Markets warns that fiscal risks, institutional strain, and Trump’s unpredictable policies could erode the dollar’s credibility premium — especially if Congress remains sidelined in major foreign policy decisions.

The global financial system is walking a tightrope. The dollar’s modest gains and measured equity reaction show that markets have not yet priced in a full-scale Middle East war. Much depends on whether Iran retaliates — and how. If the Strait of Hormuz remains open and Iranian responses stay calibrated, the current market reaction may prove temporary. But if escalation continues or energy infrastructure is targeted, global inflation could rise sharply, challenging central banks and triggering a more sustained reallocation of capital toward defensive assets.

Source: Bloomberg

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Economic

Strategic Shift in Bond Issuance Eases Yield Pressures

In a notable preemptive move, Japan’s Ministry of Finance revealed a plan to slash issuance of 20-, 30-, and 40-year government bonds by a total of ¥3.2 trillion (approximately $22 billion) through March 2026. This adjustment—especially the ¥1.8 trillion cut in 20-year bonds—is more aggressive than earlier draft expectations and appears designed to avert another failed auction like the one seen in May, which had spiked yields and sparked global ripple effects. The announcement comes just ahead of the June 24 auction, where concerns about tepid demand had been mounting.

Monday morning saw Japanese government bonds fall, with 10-year yields rising two basis points to 1.415%, partially reflecting inflation fears amid Middle East tensions. The recent U.S. strike on Iranian nuclear sites has raised the specter of a supply shock via the Strait of Hormuz, potentially pushing oil prices higher. This, in turn, would pressure bond markets already grappling with inflation that is rising at multi-decade highs in Japan.

Although the Ministry’s move is seen as constructive by market strategists, some believe it may simply redistribute volatility rather than eliminate it. Cutting long-end issuance may ease super-long bond stress, but the increase in short-term debt—particularly the 1-year, 2-year, and 6-month tenors—risks crowding liquidity in other parts of the curve. Total issuance is now forecast to drop modestly by ¥500 billion to ¥171.8 trillion for the fiscal year.

Mixed Market Reactions and Strategic Rebalancing by the BOJ

Rates strategists across Tokyo, including Naoya Hasegawa from Okasan Securities and Shoki Omori from Mizuho Securities, applauded the issuance cut as a measure to bring clarity and calm to a jittery super-long bond segment. Still, concerns remain about demand sustainability. Mari Iwashita of Nomura noted that while the 20-year cut is “positive,” auction results will ultimately determine success. The upcoming 30-year auction on July 3 will be another key test of investor sentiment.

Strategically, the Ministry’s action followed a related announcement from the Bank of Japan (BOJ), which said earlier last week that it would decelerate its pace of market withdrawal starting next year, further signaling a focus on ensuring bond market stability rather than rushing normalization.

Debate Over Buybacks and Further Reductions Continues

Officials also noted during their meeting with primary dealers that buybacks of super-long bonds are not currently being pursued, despite some market participant requests. A Ministry spokesperson emphasized that buybacks would be complicated and risk harming market independence. However, strategists such as Katsutoshi Inadome of Sumitomo Mitsui Trust Asset Management questioned the rationale behind cutting more 20-year issuance than 30-year, where similar supply-demand imbalances exist. He suggested a further cut in 30-year bonds may still be on the table.

Japan’s move to cut long-end bond supply ahead of a key auction and amid Middle East uncertainty shows proactive risk management. It brings some immediate relief to bond investors rattled by recent volatility and rising global inflationary pressures. However, the underlying structural concerns—including Japan’s rising public spending ahead of elections, the inflation outlook, and dependence on foreign demand for long-dated debt—remain unresolved. The market’s next major signals will emerge during the 20-year auction on June 24 and the 30-year issuance on July 3. Until then, volatility may remain elevated, especially if geopolitical tensions continue to escalate.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. Japan's June factory activities resumed growth, ending 11 months of contraction.

2. Trump: US completes strikes on three Iranian nuclear facilities.

3. Iranian President: The US is mastermind behind Israeli hostile actions.

4. Putin: Russia ready to support Iran's development of peaceful nuclear energy.

5. Tens of thousands of Iranians protest US strikes on nuclear facilities.

6. U.S. May unilaterally declare ceasefire with Iran.

7. Iranian Parliament approves closure of Hormuz Strait.

8. Houthis announce renewed attacks on U.S. vessels in Red Sea.

[News Details]

Japan's June factory activities resumed growth, ending 11 months of contraction

The preliminary au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI) for June rose to 50.4 from May's final reading of 49.4, ending an 11-month streak below the threshold of 50.0. Among sub-indexes, factory output and purchasing inventories rebounded to growth after months of contraction, driving the overall manufacturing PMI increase. However, new orders for manufactured goods, including those from overseas clients, continued to decline.

Annabel Fiddes, associate director at S&P Global Market Intelligence, noted that businesses indicated that US tariffs and uncertainty about global trade prospects continued to weigh on customer demand. Manufacturers' confidence in future output remained largely unchanged. In contrast, the preliminary au Jibun Bank Services PMI climbed to 51.5 in June from 51.0 in May, supported by new business growth despite a slight moderation in export sales. Regarding manufacturing and services activities, the preliminary au Jibun Bank Japan Composite PMI rose to 51.4 in June from 50.2 in May, reaching its highest level since February. Composite data revealed easing cost pressures for private-sector enterprises in June, with input price inflation slowing to a 15-month low. However, output prices accelerated to a four-month high. Employment emerged as another bright spot, with workforce numbers expanding at the fastest pace in 11 months across both manufacturing and services sectors.

Trump: US completes strikes on three Iranian nuclear facilities

On June 21st local time, US President Donald Trump posted on his social media platform Truth Social, claiming the US had carried out attacks on three Iranian nuclear sites: Fordow, Natanz, and Isfahan. Reuters reported, citing US officials, that American B-2 bombers participated in the strikes against Iranian nuclear facilities.

Iranian President: The US is mastermind behind Israeli hostile actions

On June 22nd local time, Iranian President Ebrahim Raisi condemned the US attacks on Iranian nuclear sites, stating that this act of aggression clearly demonstrates that the US is the mastermind behind Israel's hostile actions against Iran. Raisi emphasized that although Israel's attacks inflicted significant damage on Iran, now is the moment to put aside differences and leverage the great potential of the nation. He declared that the Iranian people have repeatedly demonstrated they neither fear nor retreat when it comes to the defense of their motherland's territory and dignity.

Putin: Russia ready to support Iran's development of peaceful nuclear energy

On June 20th local time, Russian President Vladimir Putin stated during an interview at the St. Petersburg International Economic Forum that the International Atomic Energy Agency possesses no information indicating Iran's attempt to develop nuclear weapons. Putin emphasized that Iran has the right to use nuclear technology for peaceful purposes. Russia opposes the proliferation of weapons of mass destruction, including Iran's acquisition of such arms, and stands ready to support Iran in developing peaceful nuclear energy. Putin also noted that Russia has repeatedly informed Israel that no evidence suggests Iran is seeking to obtain nuclear weapons.

Tens of thousands of Iranians protest US strikes on nuclear facilities

Following US attacks on three key Iranian nuclear sites, tens of thousands of Iranian citizens gathered in central Tehran's Freedom Square on June 22 local time to denounce US and Israeli aggression. Protesters declared that true peace cannot be achieved through attacking others, condemning the US strikes as criminal acts of aggression that violate international law and norms. They asserted Iran's right to self-defense and the necessity of countering aggressors. Iranian resident Kavan said Iran's only wish is to expel them [the US]. They should not maintain bases in this region, only then will peace prevail. Another protester, Ali, argued that the US has no right to commit such aggression nor to dictate what we should or shouldn't do. Iran must decisively halt these violations and punish their transgressions. We must stand up and deliver a resounding slap to America so it never repeats such faults.

U.S. May unilaterally declare ceasefire with Iran

According to Israeli journalist Ronen Bergman (Ynet) citing current and former senior Israeli security officials, the U.S. may ultimately announce a unilateral ceasefire agreement with Iran. Officials stated that even with few remaining Iranian nuclear facilities, their existence becomes irrelevant if Israel and the U.S. maintain sustained aerial superiority over the country and can strike whenever Iran resumes uranium enrichment or launches missiles toward Israel. The report indicates that if such a ceasefire is reached and Iran violates it, Israel and the U.S. may jointly attack key infrastructure or energy facilities. Conversely, if Iran adheres to the agreement, the Islamic Republic could claim success in containing Israel and the U.S., while the latter would assert the elimination of Iran's nuclear threat, providing an off-ramp to prevent further escalation.

Iranian Parliament approves closure of Hormuz Strait

On Monday (June 23rd), WTI crude oil surged nearly 6% to $78.4, a five-month high since January 17, following the U.S. military "Operation Midnight Hammer" against Iran on Sunday (June 22nd). The U.S. deployed over 14 bunker busters, 20+ Tomahawk missiles, and 125 military aircraft to strike three nuclear facilities, including Fordow.

In retaliation, Iran's parliament proposed closing the Strait of Hormuz, though final authority rests with Iran's Supreme National Security Council (SNSC). The strait serves as the only maritime passage for Gulf oil exports, handling ~30% of global seaborne crude trade. Any disruption, even temporary, could severely disrupt energy and cargo flows, trigger oil price spikes, worsen inflation, cause supply chain chaos, and potentially lead to mass unemployment.

Notably, the Strait narrows to just 34 km at its tightest point, with its navigable waterway even narrower, making it highly vulnerable. Iran could employ mines, patrol boats, jets, cruise missiles, and diesel submarines for blockade. An explosive-based closure could take weeks or months to clear.

Houthis announce renewed attacks on U.S. vessels in Red Sea

On the morning of June 22nd, Yemen's Houthi rebels condemned U.S. strikes on Iran as "blatant barbaric aggression" violating international law and the UN Charter. Citing U.S. actions, the group declared it would resume attacks on American vessels in the Red Sea. Meanwhile, Yemeni Foreign Minister Zindani earlier urged the international community to prevent regional escalation.

[Today's Focus]

UTC+8 15:15 France June SPGI Manufacturing PMI Flash

UTC+8 15:30 Germany June SPGI Manufacturing PMI Flash

UTC+8 16:00 Eurozone June SPGI Manufacturing PMI Flash

UTC+8 16:30 UK June SPGI Services PMI Flash

UTC+8 21:00 ECB President Lagarde Speech

UTC+8 21:45 U.S. June SPGI Manufacturing PMI Flash

UTC+8 22:00 U.S. May Existing Home Sales (Annualized)

UTC+8 22:00 Fed Governor Bowman Speech

UTC+8 23:00 ECB Governing Council Nagel Speech

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Commodity

Political

Middle East Situation

Muted Crude Reaction Defies Worst-Case Expectations

Global oil benchmarks opened higher after U.S. trading resumed Sunday night, reflecting heightened geopolitical risk from the Trump administration’s strike on Iranian nuclear facilities. Brent crude rose by $1.88 per barrel (2.44%) to $78.89, while WTI climbed 2.52% to $75.70. These figures, while significant, came in below the more extreme forecasts of oil spiking toward triple digits.

Despite the dramatic escalation in Middle East tensions, markets did not yet price in the full disruption of regional supply chains, indicating that traders are waiting for concrete actions—especially regarding the Strait of Hormuz—before reacting more aggressively.

Diesel Prices Signal Deeper Supply Risks

The sharpest price movement was seen in ultra-low sulfur diesel (ULSD), which jumped 3.67% to $2.6352/gallon, a nearly 10 cent increase and the highest level since April 2024. In spread terms, front-month ULSD traded at a 75 cent/gallon premium over Brent—its widest margin since February 2024. Just one month ago, that spread stood at 56 cents.

This widening reflects specific vulnerabilities in diesel supply chains. According to Energy Aspects, the conflict has severely impacted refining capacity in the region. All Israeli refiners have reportedly gone offline after Iranian retaliatory attacks, eliminating a small but export-relevant diesel source. Iran, meanwhile, typically exports diesel but may need to pivot to imports if disruptions persist. These factors are pressuring already tight inventories, particularly in Europe and, to a lesser extent, the U.S.

Strait of Hormuz: Flashpoint for Future Volatility

Underlying all pricing behavior is the looming threat to the Strait of Hormuz—a strategic waterway accounting for about 20% of global oil traffic. The Iranian Parliament recently voted to close the strait, though the final decision rests with the country’s senior leadership. Analysts stress that such a move would inflict disproportionate damage on Iran itself, which heavily depends on crude exports via the strait.

Nonetheless, the mere possibility of a closure has heightened investor sensitivity. U.S. Secretary of State Marco Rubio publicly urged China—Iran’s top oil customer—to use its influence to deter such action, reinforcing how critical the waterway remains to global energy security.

Market Still Calibrating Risk Premiums

Despite the upward move in prices, the absence of a dramatic crude spike reflects several factors. First, existing alternative export routes for Gulf states can partially mitigate Hormuz-related disruption. Second, oil inventories in OECD nations have not yet shown critical drawdowns, and current U.S. diesel demand remains relatively soft, giving traders breathing room.

However, any confirmed disruption—be it through physical blockage of Hormuz or further targeting of refining capacity—could quickly shift sentiment. Energy Aspects’ warning of escalating middle distillate supply risks highlights a key divergence: while crude is trading on potential disruption, diesel is already reacting to actual operational losses.

The post-strike oil price reaction reveals a layered market response: crude benchmarks are higher but restrained, while diesel prices are spiking in anticipation of supply imbalances. With global inventories tight and conflict escalation unpredictable, the diesel market’s outperformance may serve as an early indicator of where energy traders believe the real bottlenecks—and risks—are emerging. If the Strait of Hormuz is affected or if Iran’s refining and export capacity deteriorates further, both crude and refined product markets could enter a new phase of volatility and price dislocation.

Source: Freightwaves

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Political

Middle East Situation

Strategic Flashpoint Reemerges Amid Escalation

The Strait of Hormuz, a narrow and geopolitically vital waterway through which approximately 20% of global oil and gas supplies pass daily, has once again become the focal point of global energy concerns following the U.S. strike on Iranian nuclear facilities. Iran’s parliament over the weekend urged a blockade of the strait, but the final call rests with its Supreme National Security Council, which includes key military and political figures.

The move follows long-standing Iranian rhetoric that has used the threat of strait closure as a form of geopolitical signaling. However, U.S. Vice President JD Vance dismissed the prospect as "suicidal," citing the Islamic Republic’s deep reliance on oil exports that depend on the strait itself.

Iran Faces Cross-Pressures Between Leverage and Self-Harm

While Iran has often used low-ranking officials to float the possibility of closure—thereby sowing market instability—the true cost of action remains steep. Iran itself exports over 1.3 million barrels of oil daily, mostly destined for China, with the Strait of Hormuz serving as the primary route. Closing it would cut off this critical revenue stream.

Energy researcher Noam Raydan noted that only if Iran’s own oil infrastructure is extensively damaged—which has not occurred thus far—would full strait closure become a strategically viable option. While one refinery in southern Tehran was hit in an Israeli airstrike, the country’s broader oil network appears intact for now.

Iranian Foreign Minister Abbas Araghchi, while maintaining a defiant tone, avoided direct confirmation of any specific retaliatory move. He emphasized that the U.S. "only understands the language of force," leaving analysts to interpret this as part of a broader, deliberately ambiguous messaging strategy.

Markets Watch and Wait: Risk Remains Elevated but Controlled

Despite the high-stakes rhetoric, markets have not yet reacted with full-scale panic. This suggests that traders see the closure of the Strait of Hormuz as a tail-risk event—serious, but still improbable unless Iran’s leadership believes it has little left to lose.

JPMorgan analysts have identified the closure of the strait as a "worst-case scenario," projecting that such a move could drive oil prices to $120 per barrel and push U.S. inflation toward 5%. These estimates highlight the asymmetric risk: a single act could destabilize global energy flows and financial markets, even if temporary.

Yet the Trump administration maintains cautious confidence that Iran will avoid this path. “It doesn’t make any sense,” said Vance, underlining the potential self-inflicted damage. Secretary of State Marco Rubio echoed this sentiment, calling such a decision “another terrible mistake,” and signaled the U.S. has contingency plans should Iran proceed.

As it stands, Iran’s threat to close the Strait of Hormuz remains a powerful tool of psychological and market pressure rather than a confirmed course of action. The economic logic against closure is strong, but so is the volatility of conflict-driven decision-making. For now, the world watches a delicate game of brinkmanship where oil markets, regional stability, and diplomatic ties all hang in the balance—awaiting Iran’s next move.