The drones were again in the air on Monday morning. The US military has admitted it has attacked Iranian radar and drone-control systems in southern Iran this weekend, its third such round in just a matter of days, following Tehran's downing of an American MQ-1 Predator. Iran's Revolutionary Guards admitted that they fired back, and targeted an American air base, and Kuwait said its air defenses had shot down incoming drones and missiles. No one described it as a war. No one can seriously say it was a ceasefire, either.

Complicated negotiations that have been underway for weeks have failed to come up with a deal to end the war or to reopen the Strait of Hormuz, despite heated rhetoric and occasional violence. But both Washington and Tehran say the ceasefire is technically still in place. The oddest of peace both sides continue shooting; both sides accuse the other of starting the shooting.

The big picture as June 2026 approaches is of a war that got off to an explosive start and has since become a strategically unresolved, costly stalemate. Iran has retained control of the Strait of Hormuz, which disrupts world energy supplies, as one in five barrels of international oil and natural gas once flowed through the narrow mouth of the Persian Gulf. It's now been three months of that chokehold. The economic fallout from Jakarta to Frankfurt to Nairobi is being felt and the diplomacy to end the standoff is getting caught up in seemingly irreconcilable red lines.

A deal almost in sight but not quite

The US and Iran have struck a partial deal to extend the current ceasefire to a longer-term agreement, but it's unclear whether Trump or Iran's supreme leader has endorsed it. The draft memorandum of understanding would result in the re-opening of the Strait of Hormuz, the removal of American naval blockade on Iranian connected ships, and sixty days of nuclear dialogue. On paper, it's more like a breakthrough than it is anything we have seen in months of back and forth. In reality it is unsigned and is unraveling daily.

Issues that could cause trouble are Iran's uranium stockpile, frozen assets and the resolution of the conflict in Lebanon. Iran has stated categorically that it considers any final deal as comprising all fronts including Lebanon. In a similar manner, Washington and Tel Aviv have rejected this narrative. That gives rise to a diplomatic tangle neither side is eager to untie on the other's conditions.

The Iranians are negotiating “at least so far in good faith,” but Vice President JD Vance does not guarantee that a deal will be made on “a couple of issues on the nuclear stuff, the highly enriched stockpile, and also the question of enrichment.” Before the war, Iran's uranium enrichment was at 60 percent. A 90 percent is needed to make a weapon. Tehran has so far refused Trump's publicly stated "red line" of removing all enriched material from Iranian territory. Though not formally released, the US plan is believed to call for Iran to halt all enrichment, limit production of missiles and stop supporting armed groups abroad, and Washington would support a civilian nuclear programme and remove sanctions.

The difference between those positions isn't simply a matter of procedure. It is based on radically different views about the outcomes of the war. Washington and Tel Aviv think that their strikes earlier this year have badly damaged Iran's nuclear infrastructure. Tehran challenges how much damage it may have suffered, and does not want to negotiate from what it sees as a weak position.

Lebanon: the variable that won't hold still

As the US-Iran negotiations languish, the Lebanese front is actively worsening at a time when negotiators are hoping for the best. Israeli military forces on Sunday seized the medieval castle of Beaufort in Lebanon, a "dramatic shift" in the campaign against Hezbollah, Israeli Prime Minister Benjamin Netanyahu said.

Israel first captured the castle in its 1982 invasion of Lebanon and retained control until it withdrew its self-declared security zone in 2000. It is a very symbolically important fish to be recaptured. Netanyahu has framed the seizure as a sign of a fundamental shift in Israeli strategy, promising to strengthen and increase Israel's control in areas that have been under Hezbollah's control.

In a post on X, Iranian Foreign Minister Abbas Araghchi reiterated that “any violation of this ceasefire on one front shall be considered a violation of it across all fronts” and that the U.S. and Israel would be held responsible for the violations. That was the first time Tehran went public about it, but it has now indicated it will answer anywhere.

On Monday, the UN Security Council convened an emergency session at the behest of France. French President Emmanuel Macron condemned the current "major escalation" in south Lebanon, saying it was "nothing justifies" the violence. Germany and the UK have given similar warnings. The raids were a violation of international law, Qatar said. None of it seems to be making a dent in Israeli operational calculus and US public statements have been careful not to publicly attempt to criticize Israeli moves – leaving Washington in the awkward position of brokering a ceasefire that its closest ally is blatantly ignoring.

The cost that escalates day by day.

Remove the military and diplomatic verbiage and this is a supply shock that has few parallels in today's world. International Energy Agency chief Fatih Birol has described the shipping crisis in the Strait of Hormuz as "the largest supply disruption in the history of the global oil market.

Global oil output is projected to drop by 6.9 million b/d (6.6 percent) year-on-year in 2026 Q2, the biggest quarterly decrease since the COVID-19 pandemic. As of mid-March oil output in Kuwait, Iraq, Saudi Arabia and UAE (collectively) fell by at least 10 million bpd.

In its April commodity outlook, the World Bank said Brent crude had risen by approximately 65 percent above pre-war levels by the end of March and had its largest monthly gain ever, with QatarEnergy having declared force majeure for all exports, in response to the closure of the Strait. In May, Capital Economics published a formal assessment, noting that shipping is increasingly restricted, and that global oil stocks are being depleted at a pace that may lead to critical levels by the end of June 2026 if the disruptions persist, or to an inflation rate of 10 percent in the UK and eurozone through 2027 in the event of a prolonged disruption scenario, where oil prices hit $130-140 per barrel.

The Dallas Fed has coldly calculated the growth consequences: In 2026, global real GDP growth could drop 0.2 percentage points if the oil supply disruption lasts one quarter, or 1.3 percentage points if it extends through three quarters. To developing economies in particular to net oil importers in Asia and Sub-Saharan Africa those figures mean a contraction of fiscal space, a depreciation of currencies, and higher dollar debt-servicing costs.

The impact is not just felt with crude oil. Approximately one third of all world seaborne methanol traffic goes through the Strait, impacting on the supply chain for plastics, paints and synthetic fibres. The synthetic graphite for anodes in EVs is made from petroleum coke and slowdowns are beginning to appear in centres such as Indonesia and in the copper belt of Africa. It's not just an oil story any more. It's a supply-chain story with second and third order effects with only just starting to be priced in.

The structural trap

The problem is the current stalemate is hard to break because the underlying interests of the parties have become more entrenched, as the risks of concession have increased. Domestically, Iran cannot be observed as capitulating to military pressure to give up its nuclear programme particularly after having weathered strikes on its nuclear facilities. Deterring future Iranian nuclear ambitions is the only way to go and a verifiable rollback, not merely a pause, is the only way the United States can do this. Meanwhile, Israel is not interested in an agreement that would leave Hezbollah in the south of Lebanon and on its northern border untouched for an indeterminate period.

The US and Iran have been trapped in a standoff after signing a cease-fire in April and failed to reach an accord that would end the fighting which has killed thousands and caused a global energy crisis and let Iran retain control of shipping through the Strait of Hormuz and the US relax a navy blockade on Iranian-backed vessels.

The ceasefire, as such, has become a kind of fiction, allowing both sides to enjoy the benefits of not having to formally restart the war, at the political cost of what is essentially a continuation of the war. Each MQ-1 that is downed, each bomb placed on a radar site, each intercept made by a Kuwaiti air-defense is a data point in a war that hasn't ended; it's just been renamed.

The markets know this even if the diplomats won't say it outright. Oil is priced at levels suggesting no imminent solution, but a long-term disruption. Emerging market bonds are factoring in higher risk. In the Gulf, shipping insurance premiums are still at crisis levels. Negotiators in some back channel reached a tentative understanding on a memorandum of understanding, which will not lead to the reopening of the Strait of Hormuz. It will reopen when both parties determine that they want it more than they would want their current leverage which hasn't happened as of June 1, 2026.