Diplomatic efforts to secure a highly anticipated ceasefire between the United States and Iran hit a severe bottleneck on Tuesday following a reported confrontation between US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu.

The friction comes even as Tehran continues reviewing a draft memorandum of understanding (MOU) aimed at reopening the strategic Strait of Hormuz.

Heated Exchange Over Air Strikes

According to reports carried by Axios, a furious phone conversation took place between President Trump and Prime Minister Netanyahu after recent Israeli military operations deep inside Lebanese territory threatened to destabilise delicate, ongoing backchannel diplomacy between Washington and Tehran.

Sources familiar with the matter indicated that Trump used strong language, questioning the timing of the strikes and reminding the Israeli premier of past political backing from Washington.

The diplomatic fallout was immediate. Hours after the report emerged, Iranian state media indicated that Tehran was maintaining a highly cautious posture regarding the proposed text.

Tehran Reviews Draft Pact

The semi-official Mehr News Agency, quoting an informed source close to Iran's negotiating team, stated that the Islamic Republic is meticulously evaluating the final text of the potential MOU with the United States.

The source noted that Washington’s historical record of "breaking commitments" has forced Iranian draft reviewers to adopt an exceptionally strict approach before sending a formal response.

Despite the friction, President Trump expressed optimism during a subsequent media interaction, stating he still anticipates a formal agreement within the week to extend the current ceasefire framework and restore maritime traffic through the Strait of Hormuz.

Lebanon Escalation Threatens Dialogue

The ground reality in southern Lebanon, however, remains highly volatile. Overnight, Israeli forces conducted extensive air strikes and artillery shelling across Nabatieh, Tyre, and several smaller villages including al-Mansouri and Jibshit. Local authorities confirmed multiple casualties, including a civilian vehicle targeted on the Nabatieh-Khardali road.

The continued military offensive drew a sharp response from Iranian Parliament Speaker and chief negotiator Mohammad Bagher Ghalibaf. Following a phone call with Lebanese Parliament Speaker Nabih Berri, Ghalibaf warned via social media that continued operations by Israeli forces would lead to a total suspension of the dialogue process with Washington.

Global Markets Feel Pressure

The protracted conflict continues to trigger economic adjustments worldwide. Fresh data revealed that the United States has drawn down its Strategic Petroleum Reserve (SPR) to 357.1 million barrels—its lowest level since early 2024—in an effort to stabilise global energy supplies.

Simultaneously, international agricultural sectors are tracking supply chain shifts, with Australian authorities cutting their annual wheat harvest outlook due to rising fertilizer and diesel costs linked to the prolonged closure of shipping lanes.

Uncertain Next Steps Ahead

While international mediators, including France, have called for an immediate cessation of hostilities and questioned the justification for extended military presence in southern Lebanon, the next 48 hours remain critical.

Diplomatic sources suggest that the final execution of the US-Iran MOU hinges entirely on stabilizing the Israel-Hezbollah front, which has seen repeated projectile interceptions and drone activity despite a preliminary nod to a US-backed peace proposal.

Trump Says Iran Talks in 'Final Stages' as Tehran Defines Hormuz Boundaries, Mandates Vessel Permits

US President Donald Trump has said negotiations with Iran are in their "final stages", even as Tehran moved to assert tighter control over the strategic Strait of Hormuz by defining its supervisory boundaries and mandating permits for all vessels passing through the waterway.

Speaking to reporters on Wednesday, Trump said he was willing to give diplomacy "one shot" but warned that Washington could take "nasty" action if talks fail. "Ideally I'd like to see few people killed, as opposed to a lot," he said, adding that the situation was "right on the borderline."

Warning from Washington

The US President's comments come weeks after a ceasefire paused the US-Iran conflict. White House Deputy Chief of Staff Stephen Miller has delivered a blunt ultimatum to Tehran's leadership, though Trump suggested Washington could wait a few days to "get the right answers" from Iranian officials.

Trump also claimed that Israeli Prime Minister Benjamin Netanyahu "will do whatever I want him to do," signalling tight US control over its ally's posture in the ongoing tensions.

Tehran defines Hormuz boundaries

In a move that could escalate maritime tensions, Iran's newly-launched Persian Gulf Strait Authority (PGSA) has formally defined the management supervision area of the Strait of Hormuz. According to a post on X, the supervision area stretches from the line connecting Kuh Mobarak in Iran and the south of Fujairah in the UAE in the east, to the line connecting the end of Qeshm Island in Iran and Umm al-Qaiwain in the UAE in the west.

The management body has made it clear that "frequencies in this range for passing through the Strait of Hormuz require coordination with the Persian Gulf Waterway Management and a permit from this entity."

Economic shockwaves widen

The blockade of the Strait of Hormuz has already disrupted more than 20 per cent of global fuel supplies, and the economic fallout is being felt far beyond West Asia. In Kenya, deadly protests over soaring fuel prices have claimed at least four lives so far, with demonstrators taking to the streets across the East African nation as petrol and diesel costs have surged.

Sri Lanka's tea industry is also under mounting pressure. Tea workers in the central hill region say rising living costs are making survival increasingly difficult. "We don't know whether we can cope. If this war continues, many people will face hardship," tea estate worker Jacintha Malar told Reuters from Hatton.

Saudi Arabia turns to fuel oil

Saudi Arabia is expected to rely more heavily on fuel oil to meet soaring summer electricity demand after disruptions linked to the Iran conflict reduced natural gas supplies. The kingdom has reportedly increased imports of fuel oil for power generation as extreme summer heat pushes up air-conditioning use. Saudi Aramco boosted fuel oil imports to around 1.7 million tonnes in April, an 86 per cent increase compared with the same period last year, according to analysts cited by Reuters.

Military posturing in Tehran

As threats of renewed conflict persist, Iran has intensified public displays of military strength in the capital. Members of the Islamic Revolutionary Guard Corps are now frequently seen training civilians to use Kalashnikov-style assault rifles, while military parades featuring armoured vehicles have become increasingly common. A ballistic missile similar to those used in recent attacks on Israel was showcased during a mass wedding ceremony in Tehran.

Iran has also claimed it possesses advanced domestically developed weapons that have not yet been combat-tested. Meanwhile, officials confirmed that Tehran is "reviewing" the US response to its latest proposal, with Pakistan acting as mediator for message exchanges between the two sides.