Iran threatens ‘powerful attack’ as oil nears $100 on talk collapse

(P1) Geopolitical risk premium roared back into markets Tuesday after Iran’s joint military command threatened a “powerful attack” on predetermined targets, responding directly to President Donald Trump’s declaration that he would not extend a 14-day ceasefire and expects to “be bombing.” The escalating rhetoric shattered hopes of a diplomatic breakthrough and sent Brent crude futures jumping over 3 percent to trade just below $99 a barrel.

(P2) "I expect to be bombing because I think that’s a better attitude to go in with," Trump said in a television interview with CNBC Tuesday morning. "We don’t have that much time... I'm not gonna be rushed. I have all the time in the world."

(P3) The sharp reversal in sentiment wiped out early-session optimism, pushing all major US stock indexes lower and spiking the CBOE Volatility Index (VIX) by over 5 percent. West Texas Intermediate crude surged 4.6% toward the $90 mark. Safe-haven assets saw a mixed reaction, with gold falling about 1 percent to near $4,780 an ounce as a stronger dollar added pressure, while the 10-year U.S. Treasury yield jumped to 4.292 percent.

(P4) At stake is the stability of global energy markets, with the Strait of Hormuz—a chokepoint for roughly 21 percent of the world's petroleum liquids—at the center of the conflict. With the ceasefire set to expire Wednesday and a planned second round of peace talks in Islamabad in disarray, the path to a diplomatic off-ramp appears to be closing, increasing the probability of a direct military confrontation that could trigger a significant oil supply shock.

Diplomatic Deadlock

Efforts to salvage a peace deal have been thrown into chaos. A US delegation led by Vice President JD Vance, which Trump had earlier suggested was en route to Islamabad, Pakistan, for negotiations, remains in Washington. The trip was reportedly called off after it became clear Iran had not committed to attending, citing "contradictory messages and behaviors" from the US.

President Trump later reversed his morning stance, announcing on Truth Social that he would extend the ceasefire indefinitely at the request of Pakistani officials to allow Iran’s “seriously fractured” government time to form a unified proposal. However, he confirmed the US naval blockade of Iranian ports—which Iran’s Foreign Minister Seyed Abbas Araghchi called “an act of war”—would continue, undermining the gesture.

The IRGC's Shadow Commander

The conflicting signals from Tehran may reflect a complex internal power dynamic. While diplomats send public messages, analysts point to the silent authority of Ahmad Vahidi, the powerful commander of the Islamic Revolutionary Guard Corps (IRGC). An IRGC veteran with a history of suppressing dissent and managing Iran's regional proxy forces, Vahidi has not spoken publicly since the conflict began.

Decisions are ultimately made in Iran's Supreme National Security Council, where IRGC commanders like Vahidi hold significant influence. An incident on Friday, where an announcement by a diplomat to reopen the Strait of Hormuz was immediately contradicted by IRGC naval forces firing on tankers, highlighted this fracture. "What happened is the Iranian team went back, and the IRGC and those kinds of people said, ‘oh, no, no. You don’t speak for us’," a US official told Axios, according to one report.

Markets Price in Escalation

The diplomatic uncertainty and military threats have left traders scrambling to price in a higher risk of conflict. Oil prices had softened in Asian trade on hopes of successful mediation but reversed sharply on Trump's comments.

"Uncertainty remains the dominant force in global markets as investors navigate an increasingly complex geopolitical landscape," said Lukman Otunuga, Head of Market Research at FXTM. He noted that gold's more muted reaction shows how inflation concerns and US interest rate expectations are also guiding price action. The last time a similar military escalation occurred in the region, Brent crude spiked over 10 percent in a single week. The current standoff suggests volatility will remain elevated as the world watches for the next move from either Washington or Tehran.

This article is for informational purposes only and does not constitute investment advice.