Iran threatens to retaliate for US blockade

The US military said it will begin a blockade of ships leaving Iran's ports on Monday, and Tehran threatened to retaliate after weekend talks failed to reach a deal to end the war, leaving a ceasefire in jeopardy.

Oil prices surged when trade reopened on Monday, with no sign of a swift reopening of the Strait of Hormuz to ease the worst ever disruption in supplies.

Since the war started, Iran has effectively shut the strait to all vessels except its own, saying ships would only be allowed through under Iranian control and subject to a fee. US President Donald Trump said he would now block Iran's ships too, and any vessels that paid Iran a toll.

The ceasefire that halted six weeks of US and Israeli airstrikes is under threat, with only a week left to run, after Washington said Tehran had rejected its demands at talks in Islamabad, the highest-level discussions since Iran's 1979 Islamic Revolution.

The US military's regional Central Command said the blockade would start at 10 am ET (1400 GMT) on Monday, "enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman".

Two Iranian-linked tankers, the Aurora and New Future, laden with oil products and diesel, left the strait on Monday shortly before the US blockade was due to take effect, according to data from provider LSEG.

An Iranian military spokesperson, quoted by state media, said any US restrictions on vessels in international waters would be illegal and amount to "piracy". 

Earlier, Iran's Revolutionary Guards said any military vessels approaching the strait would be considered to have violated the ceasefire.

On Sunday, Trump had posted on social media: "No one who pays an illegal toll will have safe passage on the high seas". 

'ZERO LESSONS LEARNED' SAYS TEHRAN

With the war unpopular at home and rising energy prices causing political blowback, Trump paused the US-Israeli bombing campaign last week after threatening to destroy Iran's "whole civilisation" unless it reopened the strait.

Iran has effectively ignored that demand, while bringing new demands of its own to the talks, including recognition of its control of the strait, the lifting of all sanctions and the withdrawal of forces from the huge US military bases across the Middle East.

Trump has declared victory, despite failing so far to achieve the objectives he set out at the start of the war: to eliminate Iran's ability to strike its neighbours, end its nuclear programme and make it easier for Iranians to topple their government.

US officials said Iran had rejected demands at the talks to give up the uranium stockpile, end future enrichment and halt funding for its regional allies, positions carried over from negotiations Trump abandoned two days before the war.

Washington still hopes that Iran will seek peace and a chance to begin rebuilding from damage that has deepened an economic crisis that provoked pre-war domestic unrest.

But emboldened Iranian officials say they are in a stronger position than before, and will make a deal only if the US makes further concessions. Iran had "encountered maximalism, shifting goalposts, and blockade" from the United States at the talks, said Foreign Minister Abbas Araqchi.

"Zero lessons learned," he added. "Good will begets good will. Enmity begets enmity."

OIL BENCHMARKS UNDERSTATE DISRUPTION

Benchmark oil prices, which had eased last week after the ceasefire was announced, surged more than 7 per cent on Monday, back above $100 a barrel as traders digested the news that the weekend talks had failed to produce a breakthrough.

Traders say the main benchmarks - used to set prices for trillions of dollars' worth of commodities across industries worldwide - actually understate the severity of a disruption with no precedent in modern times.

The benchmarks are based on contracts to deliver oil one to two months ahead. Physical supplies, however, are already tight, with some refineries paying record premiums of up to $50 above the benchmarks to get their hands on oil now.

If the benchmarks catch up to physical prices, industries would face massive cost rises and some traders could be forced to realise huge paper losses. A reckoning could be approaching as the last Gulf oil shipped before the war runs out.

"Reopening the Strait has become the market’s most time-sensitive priority," JP Morgan analysts said in a note. "The last tanker to clear Hormuz on February 28 is expected to reach its destination around April 20, marking the point at which pre-closure barrels are fully exhausted from the global supply chain."

Trump has long said a bump in US gasoline prices would be short-lived. But he told Fox News' "Sunday Briefing" that they could stay high through November's midterm elections.

Iran's chief negotiator, Mohammad Baqer Qalibaf, posted a map of Washington-area gasoline prices on social media with the comment: "Enjoy the current pump figures. With the so-called 'blockade'. Soon you'll be nostalgic for $4–$5 gas."