U.S.–Iran Confrontation Escalates as Energy and Inflation Risks Rise

Daily News

Summary:

U.S. forces open fire on an Iranian merchant vessel; Iran refuses to participate in the second round of U.S.–Iran talks...

Key Highlights

1. U.S. forces fire on an Iranian merchant vessel; Iran vows retaliation

2. Iran’s Foreign Ministry says unconditional transit through the Strait of Hormuz is now history

3. Iran refuses to participate in the second round of U.S.–Iran talks

4. Iran sets three conditions for transit through the Strait of Hormuz

5. Waller adopts a cautious stance on rates, warning of prolonged war risks

Details

U.S. Forces Fire on Iranian Merchant Vessel; Iran Vows Retaliation

On the 20th (local time), a spokesperson for Iran’s Khatam al-Anbiya Central Headquarters stated that the United States violated the ceasefire agreement by opening fire on an Iranian merchant vessel in the Gulf of Oman. U.S. forces reportedly boarded the ship and disabled its navigation system, describing the act as maritime piracy.

The spokesperson warned that Iran’s armed forces would soon respond and retaliate against what he called acts of piracy and armed robbery by U.S. forces. Earlier that day, Donald Trump posted on social media that a U.S. Navy guided-missile destroyer had intercepted the Iranian cargo ship “TOUSKA” in the Gulf of Oman as it attempted to breach the U.S. maritime blockade. The vessel was fired upon, its engine compartment was hit, forcing it to stop. U.S. Marines have since taken control of the ship.

Iran Says Unconditional Transit Through the Strait of Hormuz Is Over

In remarks early on the 19th, Iranian Foreign Ministry spokesperson Baghaei said that once U.S. and Israeli actions brought American military forces into the vicinity of the Strait, unconditional transit through the Strait of Hormuz effectively became a thing of the past.

Responding to EU officials calling on Iran to comply with international law and keep the Strait open unconditionally, Baghaei wrote on social media that the EU lectures others on international law while tolerating aggression by the United States and Israel, and ignoring the suffering of the Iranian people. He described Europe’s stance as hypocritical and indicative of long-standing double standards.

Baghaei added that there is no provision in current international law that prohibits Iran, as a coastal state of the Strait of Hormuz, from taking necessary measures to prevent the waterway from being used for military aggression against it.

Iran Refuses to Participate in Second Round of Talks with the U.S.

On the 19th, Iran’s state news agency reported on social media that Iran has refused to participate in a second round of talks with the United States. Tehran stated that reports of a second round of negotiations in Islamabad are untrue.

Iran cited excessive, unreasonable, and unrealistic demands by the United States, frequent shifts in its position, ongoing contradictions, continued maritime blockades, and threatening rhetoric as factors that have hindered progress in negotiations. Under such circumstances, the prospects for a successful outcome remain unclear.

Earlier on the 19th, Trump said U.S. representatives would arrive in Islamabad on the evening of the 20th for talks. Iran’s negotiating team emphasized that as long as Trump’s declaration of a maritime blockade against Iran remains in effect, there will be no negotiations.

Previously, Trump posted on social media that U.S. representatives would travel to Islamabad for talks. He warned that the United States had proposed a fair and reasonable agreement and urged Iran to accept it, adding that failure to do so would result in the U.S. destroying Iran’s power plants and bridges. “The days of being nice are over,” he said.

Iran Sets Three Conditions for Transit Through the Strait of Hormuz

Iran has established three conditions for vessels transiting the Strait of Hormuz:

Ships must be commercial vessels; military vessels remain prohibited, and neither ships nor cargo may be linked to hostile countries

Vessels must pass through routes designated by Iran

Transit must be coordinated with the naval forces of the Islamic Revolutionary Guard Corps

According to Iran’s ambassador to Russia, Kazem Jalali, Iran has also proposed four key conditions to end the war with the United States and Israel: a complete cessation of aggression; credible guarantees to prevent future conflict; full compensation for material and moral damages; and recognition of Iran’s authority over the Strait of Hormuz to ensure maritime security.

Waller Takes Cautious Stance on Rates, Warns of Prolonged War Risks

Federal Reserve Governor Christopher Waller said he remains cautious about the need for rate cuts due to the energy shock triggered by the Iran conflict. He warned that the conflict could have long-term implications for inflation, and that oil futures markets and financial markets may be underestimating these risks.

When considering the next policy move, Waller said he would weigh rising inflation risks against a weakening labor market. If inflation risks outweigh labor market concerns, he may lean toward keeping policy rates within the current target range.

Waller noted that if oil supply recovers quickly, the Federal Reserve may look through the energy price shock. However, if the war leads to persistently high inflation alongside a weakening labor market, the Fed may need to keep rates steady.

He emphasized that the longer the Middle East conflict remains unresolved, the greater the risks to inflation and employment. A combination of high inflation and a weak labor market would present a significant policy challenge. He added that the breakeven rate for labor market growth may currently be near zero, and periods of negative job growth do not necessarily signal a recession.

Today’s Focus

14:00 (UTC+8) Germany March PPI (MoM)

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23:00 (UTC+8) Remarks by German Chancellor Merz and ECB President Christine Lagarde

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