Key Takeaways:
Trump on Thursday laid out three non-negotiable conditions for ending the Iran war, directly targeting the Strait of Hormuz blockade that has upended global energy markets.
President Donald Trump on Thursday demanded Iran permanently forgo nuclear weapons, immediately open the Strait of Hormuz for two-way passage without tolls and clear all naval mines — three conditions that would dismantle the core of Tehran's wartime leverage and potentially unlock more than 90% of the strait's suspended oil traffic.
"I think it's got a very good chance of ending, and if it doesn't end, we have to go back to bombing the hell out of them," Trump told PBS News earlier this month, previewing the hardline stance he formalized Thursday. The president spoke as his administration seeks to finalize a deal before his planned trip to China next week.
The Strait of Hormuz, through which about 20% of the world's oil passes, saw commercial traffic drop more than 90% after the conflict erupted Feb. 28. Oil prices surged from about $70 per barrel before the war to an average of $103 in March, according to Britannica data. U.S. gasoline prices have climbed to $4.96 per gallon from $2.98 in February, while the May Manufacturing PMI input prices index hit 80.0 — its highest since mid-2022 and a 22-point surge since February that mirrors the pace of the 2021-2022 inflation crisis.
The conditions come after a U.S. Navy blockade began April 13 preventing ships that docked at Iranian ports from passing through the strait, and after the May 4 "Project Freedom" operation that guided two U.S.-flagged commercial vessels through the waterway. Trump paused that operation May 5 citing "great progress" toward a deal. If the latest demands are accepted, the resumption of normal Hormuz traffic could release a backlog of about 1,000 oil-laden vessels — but if rejected, Trump has signaled a return to military escalation.
A Deal Within Reach, or a Return to War?
Earlier this month, Trump expressed optimism about a deal that would include Iran exporting its highly enriched uranium to the United States and pledging not to operate its underground nuclear facilities. "It's possible" a deal could be reached before his China trip, he told PBS News. But the new conditions — particularly the demand for toll-free passage through the strait — go beyond what was discussed in previous rounds of Pakistan-brokered talks.
Iran has used its control over strait access as a revenue source during the conflict, selectively approving transit for ships that paid hefty tolls. The "no tolls" demand directly targets that revenue stream, which had provided Iran with an average boost of nearly $25 million per day in oil revenue during March, according to Britannica.
Stagflation Fears Intensify as Energy Costs Bite
The economic stakes are mounting. The May Manufacturing PMI showed input costs rising at the fastest pace since June 2022, with the prices-paid subindex surging to 80.0 from 57.3 in February. Estimated CPI inflation has accelerated to 4.2% from 2.4%, while consumer sentiment collapsed to 44.8 from 56.6 over the same period, according to S&P Global and University of Michigan data.
The last time the U.S. faced a comparable energy-driven inflation shock was during the 2021-2022 period, when CPI peaked above 9% and the Fed embarked on its most aggressive tightening cycle in decades. The difference this time is that economic growth is also slowing — manufacturing and services activity expanded only modestly in May as companies accelerated layoffs, creating the stagflation conditions policymakers had hoped to avoid.
This article is for informational purposes only and does not constitute investment advice.
