A woman walks past war-themed graffiti and murals painted on walls along a street in the capital, Tehran, July 22, 2026, as daily life continues under the shadow of rising military tensions between the United States and Iran and as air defense systems are activated at night.
Fatemeh Bahrami | Anadolu | Getty Images
Hostilities between the United States and Iran appeared to remain temporarily dormant on Monday after talks on a permanent peace faced new hurdles over the weekend.
The US military called off two weeks of airstrikes on Friday as diplomats sought to give “some space” to peace talks. Iran has also refrained from military operations against regional targets in recent days, but said it would retaliate in response to a Chinese-led move to restart stalled diplomatic efforts in Pakistan.
However, other parties also took military actions related to the conflict over the weekend, highlighting the risk of further escalation and the complex challenges facing negotiating parties.
Saudi forces have carried out strikes on Iranian-backed Houthi targets in Yemen following rebel attacks on ships in the Red Sea in recent days.
Meanwhile, Ukrainian forces reportedly collided with an Iranian merchant ship in the Caspian Sea, killing one sailor and injuring another. Kiev said the ship was being used to transport munitions in support of Russia’s invasion of the country, while Tehran condemned the attack as a “hostile and criminal act.”
Investors nevertheless rejoiced at the pause in hostilities, not long after the White House was said to be considering a “massive attack” on Iran. Oil prices fell about 6% early Monday as futures markets showed solid performance on Wall Street.
Challenges facing negotiators
But experts warn that prospects for durable peace face serious challenges. Negotiators must first agree on controversial topics such as the future of Iran’s nuclear program, sanctions relief and Iran’s support for proxies in the Middle East.
From an economic perspective, the most important negotiating points will be guarantees of maritime security and the return and normalization of free two-way traffic flows through the strategically important Strait of Hormuz.
The strait, through which a fifth of the world’s oil supplies flowed before the conflict, remains closed as the United States maintains an ongoing blockade.
Oman, located on the opposite side of the strait from Iran, has emerged as a key negotiating power. An Omani delegation reportedly visited Tehran on Friday and Saturday to try to negotiate an interim agreement to control shipping through the waterway.
Both sides have described ongoing talks as constructive, but analysts warn that normalization of traffic is unlikely in the short term.
“The main market risks remain on the energy and shipping side,” Deutsche Bank analysts said in a note on Monday. “Traffic through Hormuz remains severely disrupted and the conflict has extended to the Red Sea.”
“This raises the possibility that both Gulf and Red Sea export routes will be disrupted at the same time. The suspension of key actors is therefore a welcome but vulnerable one, especially as side battles are still ongoing.”
