Iran on late Wednesday formally rejected the United States’ latest ceasefire proposal, escalating tensions in an already volatile Middle East conflict and raising fresh concerns over global energy security after warning it could target one of the world’s most critical maritime chokepoints.

In a series of statements, Tehran laid out five preconditions for ending the war, including an immediate halt to attacks, guarantees against future US strikes, reparations, and international recognition of its authority over the Strait of Hormuz. It also made clear that no negotiations would take place until these conditions are met, calling Washington’s proposal “excessive” and rejecting any timeline dictated by US President Donald Trump.

“The Strait of Hormuz will not be the same as it was before the war,” an Iranian official said, adding that “the decision to grant a transit permit to a ship rests solely with us.”

More importantly, Iran warned that it could shut the Bab el-Mandeb Strait—a narrow passage linking the Red Sea to the Gulf of Aden—if attacks were carried out on its territory or offshore islands.

A second chokepoint threat

The Bab el-Mandeb, often overlooked compared to Hormuz, handles roughly 10–12% of global seaborne oil trade and is considered the world’s fourth-largest shipping chokepoint.

While Iran does not have direct control over the waterway, it could leverage allied groups such as Houthi rebels in Yemen to create disruption in the corridor.

A disruption here would directly impact trade between Asia and Europe via the Suez Canal, forcing vessels to reroute around Africa, adding up to two weeks of transit time and higher freight costs.

Analysts warn that a simultaneous disruption of both Bab el-Mandeb and Hormuz could take over 25 million barrels per day of oil flows offline, representing a substantial share of global seaborne supply—even if not a full quarter of total global production.

Brent crude surged almost 7% to around $105 per barrel and WTI Crude has risen to $92.02 during the past couple of hours amid escalating tensions. US equities ended higher on Wednesday, with the Dow Jones, S&P 500 and Nasdaq Composite each closing at least 0.5% up. However, Dow futures were trading lower by around 0.36% as of 12:45 pm IST.

Indian markets remained shut on Thursday for Ram Navami, while GIFT Nifty was down over 0.5% at the time of publication.

Brent crude had earlier dropped below $100 per barrel following indications from Trump suggesting possible diplomatic engagement and a delay in escalation. However, renewed threats from Iran—including the Bab el-Mandeb warning—have reintroduced a geopolitical risk premium, stabilising prices and prompting fresh upside pressure.

Meanwhile, U.S. president Donald Trump has repeated saying he is talks with the "the right people" in Iran. On Wednesday, he also said Iran gave US a "present" related to oil and gas.

"They are going to make a deal. They did something yesterday that was amazing. They gave us a present, and the present arrived today. It was a very big present worth tremendous amount of money. I am not going to tell you what the present is, but it was a very significant prize and they gave it to us ... It wasn't nuclear related, it was oil and gas related," Trump told reporters on Wednesday.

The market remains highly headline-driven, with prices swinging sharply between optimism over talks and fears of supply disruption.

Military escalation and messaging war

The diplomatic breakdown has unfolded alongside intensifying military exchanges.

According to reports, Iranian strikes on US military infrastructure in the region have caused “severe” damage, forcing some American personnel to relocate to civilian facilities, while operational units such as fighter pilots continue active missions.

Iran has also warned that any attempt to occupy its islands would trigger “relentless attacks” on critical infrastructure of adversaries in the region.

Washington, meanwhile, has struck a defiant tone.

“If Iran fails to accept reality that they have been defeated, Trump will hit harder,” the White House said, adding that ongoing operations have degraded Iran’s missile and naval capabilities and reduced its attack capacity by roughly 90%.

Global implications

The standoff has now moved beyond a regional conflict into a global economic risk event.

While Iran may lack the capacity to sustain a full-scale blockade of both chokepoints simultaneously, even partial disruption—or the credible threat of it—can be enough to reroute shipping, spike insurance costs, and push oil prices higher.