Just before dawn Sunday, the air raid sirens pierced the cities of northern Israel, which had barely breathed a cautious sigh of relief after two months of peace. Iran had fired missiles at Israel (11, according to Israel's tally) and by so doing, it had violated a ceasefire that had been in effect since early April, laying bare as starkly as could be the failure of the fragile truce to resolve anything.

Netanyahu reportedly acceded to Washington's pressure by holding back on June 8. In a phone call with the Israeli prime minister, Trump has asked him to "stand down and give diplomacy more time" because he believes, as he said, "we are close to doing something good in terms of a deal. Netanyahu deferred, attempted to convince Trump to allow Israel to strike, and eventually ‘pseudo-agreed' according to the same official.

That word pseudo is working a lot here. It provides almost all the information regarding the current situation in the Middle East.

A road that got us here.

To explain why missiles were now once again being fired over Haifa and northern Israel, one must remember that Israel and the United States have conducted a coordinated strike against Iran in February 28, aimed at the nuclear program and Iranian military command centres. Those strikes killed Iran's Supreme Leader Ali Khamenei, who was the one who rewrote the whole regional calculus overnight. His son, Mojtaba, took over the supreme leadership and Iran's new government was under the double burden of domestic legitimacy and military humiliation.

Since February 2026, US and Israeli military operations against Iran have prompted a series of Iranian counter-strikes across the Persian Gulf, such as the closure of the Strait of Hormuz on March 4 that threatened and struck ships passing through the strait. The economic jolt was swift and harsh. Within a week of the closure of Hormuz, natural gas prices in Europe have jumped 63%, and prices in Asia have jumped 54%, and the price in Europe ended up being higher than the price in Asia, which is normally the world's highest energy price market.

The price of gasoline in the United States hit $4 per gallon, and investors swung in a pendulum of hope and panic as the war wobbled back and forth between escalation and possible deal in the spring.

When the ceasefire finally came on April 8, the market was euphoric from relief. US crude oil closed down 16.4% to $94.41 per barrel its largest one-day decline since 2020 and the S&P 500 jumped 2.5%. The Nikkei climbed over 5%, the Kospi jumped 7% and the DAX rose over 5%. In short, the world had been desperate for this to end.

What the markets assumed and what diplomats virtually knew from the outset to be false was that the ceasefire marked the start of resolution, not so much a halt to the conflict.

What Ceasefire never settled.

Four Middle East officials and diplomats confirmed that three key issues were still yet to be worked out: the timing of the Strait of Hormuz reopening, U.S. demands on Iran's nuclear program and Iranian demands for upfront relief of frozen assets in any deal. These are not secondary elements. They form the very stuff of the whole conflict.

In fact, one senior Middle East diplomat said, negotiations have actually gone backward late Friday. The diplomat said there was not any significant discussion between the two nations as they are at the moment; a direct contradiction to the Trump administration officials who began to insist that negotiations were ongoing.

In the meantime, the Lebanon front was never properly held. In a major setback for the efforts of the U.S. government to broker a ceasefire between Israel and Lebanon, Hezbollah refused to accept it just hours after the U.S. State Department announced the agreement. Iran has always insisted on a stop to the fighting in Lebanon as a prerequisite for any agreement with the US. As might be expected, Israel was not prepared to connect the two tracks.

In the week before the missiles were fired on June 7, US commandos had seized an Iranian oil tanker and downed several Iranian drones, tensions between Israeli troops and Hezbollah had been rising in southern Lebanon. It is in this context that Iran launched its first missiles at Israeli soil in two months.

The Trump-Netanyahu Fault Line

The ties between Washington and Jerusalem have been increasingly strained and the June 7-8 events have made this apparent in a rather unusual manner. In an interview with Financial Times, Trump was very clear who was in charge: “I call the shots. I call all the shots.” Trump said he does not call the shots with Netanyahu.

Iran's retaliatory missile strikes were apparently a direct response to the strikes Hezbollah targets in Beirut earlier Sunday, which apparently caught the White House completely off guard. The White House never granted them a "green light" to make those attacks, two U.S. officials told Israeli media, one of whom said bluntly, "we had no part in this. By contrast, a Saudi report had said Israel did, in fact, notify Washington in advance. The contradiction is significant, because it addresses a key question: is Israel inside or outside of the structure that Trump thinks he has built?

The phone call after the missile firings was said to have been less rancorous than a previous one last week when Trump publicly admitted he had “cursed and yelled” at Netanyahu over Israeli intentions to bomb Beirut. After this latest call, the US official said, "We're in a moment in time why risk a potential deal when you're in the fourth quarter. The president believes that we've been in this thing for three months now is the time to end this thing.

That "fourth quarter" language, "deal almost complete" is a rhetorical tactic Trump has often used. But the facts on the ground are different. “Trump underestimated the willingness of Iran to restart the conflict,” said a White House official, who requested anonymity. “Iran's erratic behavior has put the president in an incredibly challenging situation with no imminent off-ramp.”

On the Iranian side, a military adviser to Iran's supreme leader cast the June 7 missile launch as a warning commensurate with Iran's provocations. The launch was "a warning to stop their hostile actions" in Lebanon, Mohsen Rezaee said ISNA. But an Iranian official close to negotiations with the United States took it a step further: “A deal with President Trump is not possible at this stage anymore” and implied that Trump himself was responsible for the ongoing escalation.

The Regional Overspill

Spillover is now a reality. The US State Department warned American citizens in Jordan to “seek shelter” because “missiles, drones or rockets” are reportedly in the country's airspace. Iran also hit another site independently, which it said was the headquarters of terrorist groups in Sulaymaniyah in Iraqi Kurdistan, as the IRGC revealed the operation via state media. Another dimension was added to the crisis by Yemen's Houthi rebels, which are still supporting Tehran, firing a missile towards Israel.

Saudi Arabia activated air sirens in the vicinity of a base where US troops are stationed, but cancelled the alarm shortly after. The Gulf states, who had recently been repairing relations with Iran, which they had been hostile toward for years, are now facing a direct threat environment for the second time in less than one year.

It's not an abstract economics. Even if a ceasefire comes and the conflict in Sudan eases, Dallas Fed economists forecast that headline inflation will still increase by 0.8 percentage points relative to the pre-conflict level by June 2026. If the Strait of Hormuz were to close again as a point of passage for some 20% of world oil and a large share of LNG, it would wipe out all the market gains since April 8 in an instant.

The underlying structural issue.

But what the June 7-8 events show is that it wasn't simply tactical miscalculations on the part of one side. They expose a disconnect between the players' real preferences.

Trump wants a deal, one that he will be able to call his own, that he can claim for his record and that will enable him to have a legacy in Middle East diplomacy. He is said to be 'confident even now that a final deal is achievable'. He wrote on social media that "both sides, Israel and Iran, are looking to do an immediate ceasefire" and that "final negotiations on peace are proceeding.

Netanyahu wishes for freedom of military action, especially in Lebanon and against Hezbollah and is extremely hesitant to allow any deal that does not reduce Iran's influence on Hezbollah. Israel has always taken the view that the Lebanon front cannot be divorced from the overall Iran problem.

The new leadership in Iran, headed by Mojtaba Khamenei, has its own internal pressures. Any arrangement resembling surrender of the rights of nuclear power or missile programs is likely to undermine a government that took office after the traumatic deaths of the previous supreme leadership. The frozen assets demand is not just about economics, it's about optics and sovereignty.

These three interests don't fit well now. That incompatibility was papered over by the ceasefire of April 8. In June 7, the missiles had to pierce the paper.

On Monday morning, an Israeli official said Israel agreed to Trump's suggestion to suspend its strikes against Iran but emphasized that it would not end its attacks on Hezbollah in southern Lebanon. Thus, for now, the pause is on one side. But the Lebanon front which caused the whole escalation on June 7, is alive.

April 8 ceasefire was never an end. It was a comma. What will follow the period or the exclamation point is at this moment truly unknown and the world economy, the Strait of Hormuz and the northern Israeli cities sit in that uncertainty as well.