On June 1st, Iran's sudden reversal of attitude caught the global energy market off guard.
According to Iran's official news agency Tasnim, due to Israel's continued military operations in Lebanon, the Iranian negotiating team formally suspended all dialogue with the United States through intermediaries, and announced a complete blockade of the Strait of Hormuz, as well as operations on other fronts, including the Bab el-Mandeb Strait. Israeli Prime Minister Netanyahu also announced that day that Israeli forces had captured the Beaufort Ridge stronghold in southern Lebanon and ordered further military operations into Lebanon, marking the April 17th ceasefire as "essentially invalid." Iranian Foreign Ministry spokesman Bagaei reiterated that there would be no dialogue between the US and Iran unless Israel ceased its military operations in Gaza and Lebanon.
As a result, international oil prices surged across the board that day. As of 10:07 AM Eastern Time, WTI crude oil futures rose 7.8% to $94.20 per barrel; Brent crude oil futures rose 6.7% to $97.23 per barrel. Jorge Leon, head of geopolitical analysis at Rystad Energy, warned that if peace talks completely break down, oil prices could surge to $180 a barrel in August, which would mean a severe global recession, especially in Europe and emerging Asia. Conversely, if the US and Iran can reach an agreement on all issues, including the nuclear issue and the reopening of the Strait of Hormuz, oil prices could quickly fall back to around $70 by the end of the year.
Amid the escalating situation in Iran, the Federal Reserve is also releasing clearer hawkish signals. The US PCE rose 3.8% year-on-year in April, a new high since 2023, while core PCE rose to 3.3%, further weakening expectations of interest rate cuts. Minneapolis Fed President Kashkari pointed out that the global "inflationary shockwave" triggered by the Middle East conflict has lasted far longer than expected, and reducing inflation remains the top priority. Former dovish Chicago Fed President Goolsby also acknowledged that this round of energy inflation will last longer than the market anticipated, and the longer the "pure inflationary shock" lasts, the more worrying it becomes. Kansas City Fed President Schmid bluntly stated that inflation is "overheated" and has been above the Fed's policy target for more than five consecutive years, ruling out the possibility of further tightening policy through interest rate hikes. Since taking office on May 22, current Fed Chairman Warsh has not made any clear comments on the situation in Iran, but market pricing in a rate hike this year has increased, making the June policy meeting (June 16-17) a key juncture.
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