Despite the arrival of Iran's long-awaited response to President Trump's letter, delivered through an intermediary on Saturday, geopolitical tensions between the US and Iran have escalated, marked by increased rhetorical hostility.
The threats and counter-threats that started coming out from both camps frequently in these days could have an impact on the prices of crude oil that in turn could push the inflation up. As far as the US economy is concerned, inflation in the world's largest economy was a major issue during the presidential campaign; President Trump vowed to tame the inflation by reducing the energy prices, something that has yet to materialize.
Neither the inflation nor the energy prices have come down as much as Mr Trump expected, although he appears to be taking steps to tackle the two issues simultaneously.
Mr Trump's critics think that the war rhetoric could distract the Commander-in-Chief from his main mission - reviving the US economy; President Trump is simultaneously engaged in a tariff war with the rest of world as well.
As for the ongoing stand-off between Iran and the US, the IRGC Navy Commander of Iran, said yesterday that Iran would target the military bases in the island of Diego Garcia in the Indian Ocean, vowing not to make a distinction between military assets of the US and those of the UK, in the event of an attack against Iran from the Asian island. The authorities in the United Kingdom condemned the move and urged Iran to deescalate the situation rather than exacerbating it.
On Sunday, meanwhile, President Trump threatened Iran again with an ominous warning: "If they don't make a deal, there will be bombing — and it will be bombing the likes of which they have never seen before," said Mr Trump while venting his frustration over President Putin's slow response to making peace with Ukraine in a telephone interview with the NBC news channel, although the two scenarios are not related at all.
Associated Press, AP, meanwhile, speculated about the message in the Iranian letter delivered to President Trump: it is not great reading, though; Iran has ruled out direct talks with the US, something that Washington was insisting on.; the Iranian president, however, put a spin on the development and said that there was still room for indirect talks, something that had been going on for over 2 years while President Biden was in power; judging by President Trump's response, it does not appear to be what he had been hoping for, while sticking to his 'Maximum Pressure Campaign" against Iran.
Iranian economic situation, meanwhile, is far from rosy: Iranian currency, rial, for is instance, is in freefall; rial was at 42,000 to the dollar at present; inflation, rampant corruption, scarcity of water in certain regions due to prolonged drought and above all, the youth frustration over lack of jobs and opportunities have been causing a real headache for the Iranian authorities; Iranian women are up in arms in the meantime as never before, while fighting for their rights, as well as for what to wear.
In these circumstances, the US tightened the screw of sanctions even further in order to deny Iran of a lifeline - selling the most important substance to earn dollars, crude oil; it was a hammer blow for Iran and could not have come at a worse time for Shia-dominated, Middle Eastern nation.
Despite the international sanctions, Iran still managed to smuggle out significant amount of oil in plain sight; China imported substantial amount of Iranian oil at discounted prices. To China's dismay, the Trump administration has targeted the shadow fleet of tankers that managed to evade sanctions and sell Iranian oil for desperate buyers; the companies involved in the trade have been blacklisted; since China is the world's top importer of crude oil, the amount of revenue that Iran is going to lose and the impact on the Chinese economy , especially in the manufacturing sector, are highly significant.
China's manufacturing PMI, the most significant index, which reflects the factory activities, has been in the doldrums for months, before slightly moving just above the threshold, 50%, in recent months. The low energy cost, as far as China is concerned, is a major factor that could stimulate the growth of the Chinese manufacturing sector. In recent months, analysts have been monitoring the Chinese PMI more than any other factor, given its significance in gauging the demand for oil from the world's second largest economy.
,Iranian oil supply is not the only source of commodity that the Trump administration is targetting: US investments in Venezuelan oil have been targeted and even Russian oil and gas supply may suffer the same fate, if President Trump sticks to his threats on sanctions against Russia - for not making a peace deal with Ukraine.
Of course, in light of these rapidly-evolving developments, analysts and investors in the energy sector are understandably worried about the supply side of the oil equation. The Trump administration, however, has not given up on its mission to rapidly increase the production of oil and gas in the US; the Interior Department announced last Thursday that in the first three months of 2025, the federal government brought in nearly $40 million in revenue from oil and gas lease sales on public land; President Biden, by contrast, paused issuing licences for the same on Federal land, when he took office in 2020.
Despite a range of uncertainties, the price of crude oil has been hovering around $70 a barrel, defying some overly-optimistic speculators, who thought it would hit $100 a barrel. Neither the war in Ukraine nor that in Gaza led to spiking it wildly, although at the very beginning of both wars, the price rose significantly. Most analysts attribute it to the abundance of commodity in the markets and slow global economic growth, especially that in China, world' largest importer of crude oil.
If the US-Iran enmity enters the next phase, a war, there is a possibility of markets dynamics changing overnight, if Iran sticks to its threats that it frequently makes: for instance, Iran threatened to block the Strait of Hormuz for flow of crude oil; the waterway accounts for more than 20% of world's seaborne supply; it also threatened the Arab countries where the US military bases are located, such as Qatar and Bahrain, if the US chose them as launching pads; its latest threat came against the United Kingdom.
The presence of two navy strike groups of the US - two aircraft carriers , destroyers that accompany them and of course, hundreds of state-of-the-art fighter jets - the military might of a medium-sized nation in the ocean - however, can deter Iran from pursuing such an aggressive move. In addition, Iran has to constantly monitor its own populace, who are tired of experiencing numerous hardships on many fronts, To make matters worse for Iran, the groups that were supported by Iran, such as Hamas in Gaza, Hezbollah in Lebanon and the Houthis in Yemen, have become weaker in recent months due to Israeli attacks.
All in all, the stake cannot be higher for Iran in the current circumstances. The military build-up in the island of Diego Garcia continues unabated as President Trump let slip what he plans to do unless he gets what he wants on Sunday.
