US Pauses Iran Strikes as Conflict Spreads to Red Sea and Caspian Sea
The US paused strikes on Iran after 13 days of attacks, prompting a lull in hostilities that has spread the conflict to the Red Sea and Caspian Sea while easing oil prices and boosting bonds.
US and Iran Halt Strikes
After striking Iran for 13 consecutive nights, the US has apparently held off since late Friday without explanation. [4] The Pentagon abruptly suspended the campaign late on Friday, with no attacks reported on either Saturday or Sunday. [4] Iran’s army said Sunday that Tehran had also suspended its military response. [2] Iran’s army spokesman Mohammad Akraminia stated that attacks continued until two nights ago but over the past two nights the Americans have stopped their attacks, and since the strategy has essentially been retaliatory, Iran has also halted its retaliatory operations. [4] US officials cited ammunition shortages, military advice and the need for diplomacy as reasons for halting strikes. [4] American media reported that President Donald Trump called off the campaign after being advised by top military and civilian aides against further escalation. [4] CNN and the New York Times said Pentagon Chief of Staff Dan Caine had pointed to the depletion of stocks of Patriot air defence missiles. [4] Vice President JD Vance had also expressed reservations. [4] The overall commander of US forces in the Middle East, Admiral Brad Cooper, had advised halting the bombing campaign because it had reached the limits of its effectiveness. [4] US ambassador to the United Nations Mike Waltz told Fox News on Sunday that Trump had decided to pause attacks to allow more time for diplomacy, stating that Trump was giving talks some space while forces remained locked and loaded. [4]
Conflict Expands to Red Sea and Caspian
The Iran war broadened over the weekend despite a pause in US strikes, as Yemen’s Iran-aligned Houthis attacked Saudi oil installations along the Red Sea coast. [1] Iran accused Ukraine of targeting one of its vessels in the Caspian Sea, calling it an act of aggression that cannot go unanswered. [1] Iranian Foreign Minister Abbas Araghchi launched a firm warning to Kiev after Ukrainian forces attacked an Iranian merchant ship in the Caspian Sea. [5] Araghchi described the attack as a violation of the UN Charter and said after conversations with EU foreign policy chief Kaja Kallas and Russian Foreign Minister Sergei Lavrov that the action cannot remain without response. [5] The attack caused an explosion on the vessel, killing one sailor and injuring another. [5] Tehran condemned the events and stressed that the action constitutes a violation of the UN Charter and an act of aggression that can exacerbate and spread the war. [5] Iranian officials indicated that the attack shows the persistence of the irrational and hostile attitude of the Ukrainian regime toward the Islamic Republic of Iran. [5] Ukrainian President Volodymyr Zelenski announced that Ukrainian forces obtained excellent results in long-range attacks in Caspian waters, targeting vessels transporting military cargo from Iran and a warship. [5] Araghchi noted that the aggression would have been carried out at Israel’s request with the aim of involving Europe in the conflict. [5]
Markets React to Eased Tensions
Oil dropped and bonds climbed as the US and Iran refrained from further strikes, easing concerns over disruptions to Middle East energy supplies. [2] Brent fell as much as 7.4% to below $90 a barrel as the US paused an almost two-week run of strikes against Iran, before paring about half its losses. [2] West Texas Intermediate crude fell 4.2% to $85.53 a barrel. [2] Treasuries rose, while European bond futures and Asia Pacific government bonds advanced as the drop in oil prices tempered inflation concerns. [2] The yield on the benchmark 10-year Treasury fell four basis points to 4.64%. [2] The dollar weakened against all of its Group-of-10 peers. [2] The Bloomberg Dollar Spot Index fell 0.2%. [2] Futures contracts for the Nasdaq 100 Index climbed 1.2% and those for the S&P 500 Index advanced 0.7%. [2] Asian shares were a touch more cautious, swinging between small gains and losses ahead of megacap tech earnings later this week. [2] The lull in hostilities sets the tone for a pivotal week in markets, with traders focused on whether the Federal Reserve will raise interest rates on Wednesday after a recent surge in oil prices fueled inflation concerns. [2] Investors also await earnings of tech bellwethers after a recent backlash against heavy spending on artificial intelligence. [2] Market analyst Fabien Yip of IG International in Sydney said the pause in US-Iran hostilities has pulled oil back, but the relief in equities has been limited, adding that there is real fatigue setting in around the back and forth and markets are less willing to price a lasting de-escalation until evidence such as resumption in strait traffic holds. [2] Krishna Guha, head of central bank strategy at Evercore ISI, wrote that the Fed will probably not hike on Wednesday, noting it would be odd to do so right after the better June inflation print given an uncomplicated path to hike in September if needed. [2]
Diplomatic Efforts Behind the Lull
Diplomatic sources in Washington said that Pakistan and other mediators had played a significant role in efforts that helped halt the second round of bombing and create conditions for another pause in fighting. [4] Pakistan remained in touch with Tehran, Washington, Riyadh and Beijing during the latest US bombing campaign. [4] Diplomatic sources said Pakistan had maintained communication with those capitals, arguing that these channels helped preserve space for diplomacy at a time of heightened tensions. [4] Islamabad continued diplomatic outreach at multiple levels, including contacts between senior officials, engagement with diplomatic counterparts and discussions with policymakers in Washington. [4] Pakistan’s position remained that dialogue was the only sustainable path toward ending the confrontation. [4] The diplomatic push continued over the weekend, with Turkish Foreign Minister Hakan Fidan reaching out to Qatari and Pakistani leadership. [4] Fidan discussed the negotiation process between Tehran and Washington with Qatari Prime Minister Mohammed bin Abdulrahman Al Thani and Pakistan’s army chief Field Marshal Asim Munir. [4] Islamabad and Doha have intensified the exchange of messages between the warring sides after Washington and Tehran communicated their responses to a joint formula to end the months-long war. [4]
What to watch next includes the Federal Reserve decision on Wednesday along with Bank of England and Bank of Japan decisions, as officials are likely to emphasize vigilance over the inflationary impact of higher energy prices, followed by earnings from Microsoft, Meta, Apple and Amazon later in the week.
