Iran Rejects Direct Talks With Washington — and Oil Has Hit $107 in Response

The brief window of optimism that opened on Monday has closed. Brent crude surged to more than $107 a barrel on Thursday as Iran’s foreign minister formally rejected direct negotiations with the United States, even as a 15-point US peace proposal circulates among senior officials in Tehran. WTI approached $95 a barrel. Stocks sold off. The five-day pause on US strikes against Iranian energy infrastructure — announced by President Trump on Monday — expires in 48 hours.

Since the war started, the cost of US crude oil is up more than 40%. Since the start of the year it has risen more than 60%. Heating oil, a proxy for jet fuel prices, also spiked 6% early Thursday. NBC News

The sequence of events this week illustrates exactly how difficult it has become to trade this conflict. On Monday, Trump announced “very good and productive conversations” with Iran and ordered a halt to strikes against Iranian energy infrastructure, sending Brent down nearly 11% from its peak of $112. On Tuesday, he claimed negotiations were actively underway. Iran’s Foreign Ministry called the claim “fake news.” On Wednesday, oil dipped as the 15-point proposal surfaced. On Thursday, Tehran rejected direct talks entirely — and oil recovered everything it had given up. Iranian Foreign Minister Abbas Araghchi told state media that exchanges between the two countries through mediators do not constitute “negotiations with the US.” CNBC

Trump’s response on Truth Social was characteristically blunt. “The Iranian negotiators are very different and ‘strange,'” he wrote. “They better get serious soon, before it is too late, because once that happens, there is no turning back, and it won’t be pretty.” NBC News

The underlying physical reality has not changed since the conflict began on 28 February. The Strait of Hormuz — through which roughly a fifth of global oil supplies passes daily — remains effectively closed. While Tehran has repeatedly claimed the strait is open to ships not aligned with its enemies, daily transits have all but collapsed since the start of the conflict. Al Jazeera Hundreds of vessels loaded with oil and liquefied natural gas remain stuck. Qatar’s LNG facilities remain offline following Iranian strikes on Ras Laffan. Kuwait’s force majeure on crude exports remains active.

The diplomatic picture is equally intractable. As Trump’s attempts to talk down oil prices through ceasefire messaging have repeatedly failed to hold, the pattern has become familiar: a White House statement moves prices sharply, Tehran denies it, and oil recovers. The market has now largely priced in the cycle and is trading on the physical supply reality rather than diplomatic messaging.

For central banks, the situation is becoming increasingly uncomfortable. TD Securities analysts said this week that the Fed is likely to remain in “wait and see” mode, looking through the energy shock so long as longer-term inflation expectations remain anchored. But the stagflation signal that first appeared in PMI data this week — eurozone private sector activity hovering just above contraction, prices surging — is growing harder to look through the longer oil stays above $100.

For European businesses specifically, the consequences are structural rather than cyclical. As the Volkswagen-Rafael Iron Dome talks illustrate, the conflict is already reshaping industrial strategy across the continent. Energy-intensive sectors — cement, chemicals, manufacturing — face cost structures that were costed before the conflict and cannot easily be renegotiated. The EU’s push for capital markets reform at this week’s Yaoundé summit takes on a different urgency when the energy costs underpinning European competitiveness are rising by the week.

With Trump’s ceasefire pause expiring on Saturday and no credible diplomatic framework in place, the market’s base case is that the conflict continues. The only genuine bearish catalyst for oil at this point is either a verified ceasefire or evidence that the energy shock is triggering a demand-destroying recession. Neither appears imminent.

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