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A fragile diplomatic effort is collapsing in real time as Iran refuses to join new talks with the United States, even as President Donald Trump pushes ahead with a high-stakes mission to Pakistan and threatens military action if his terms are not met. With global energy markets already on edge, the standoff is raising fears of a renewed oil price shock and deeper regional escalation.

Diplomatic Breakdown Deepens as Iran Walks Away

Iran is not planning to participate in new peace talks with the United States, its state news agency reported on Sunday, hours after US President Donald Trump had said he was sending envoys to Pakistan for talks and would strike Iran unless it accepted his terms.

The message from Tehran signals a sharp setback for already fragile negotiations.

"Iran stated that its absence from the second round of talks stems from what it called Washington's excessive demands, unrealistic expectations, constant shifts in stance, repeated contradictions, and the ongoing naval blockade, which it considers a breach of the ceasefire," Iran's official IRNA news agency wrote.

The breakdown underscores widening mistrust between the two sides, with each accusing the other of undermining ceasefire conditions and escalating pressure at sea.

Trump Escalates Pressure With Military and Maritime Claims

President Trump intensified tensions on Sunday, claiming US forces had seized an Iranian flagged cargo ship.

"We have full custody of their ⁠ship, and are seeing what's on board!" he wrote on social media.

Trump said the US military had taken control of the vessel by blowing a hole in its engine room, a move that immediately fueled new uncertainty over maritime security in the Gulf.

The US has maintained pressure on Iranian shipping routes, while Iran has alternated between lifting and reimposing restrictions on marine traffic through the Strait of Hormuz, a critical global oil artery that once carried nearly one fifth of the world’s oil supply before the conflict began.

High Stakes Talks Shift to Pakistan as Deadline Looms

Iran’s decision to step back from negotiations came shortly after Trump announced that US envoys would arrive in Islamabad on Monday evening, just one day before a two week ceasefire is set to expire.

A White House official said the delegation would be led by Vice President JD Vance, alongside envoy Steve Witkoff and Jared Kushner. Trump, however, later told ABC News and MS Now that Vance would not travel.

The conflicting signals highlight uncertainty inside Washington’s negotiating strategy at a moment of rising geopolitical pressure.

Energy Markets Brace for New Oil Price Shock

The diplomatic setback could trigger immediate turbulence in global energy markets when trading resumes. Analysts warn the crisis has already delivered one of the most severe shocks to global oil supply in history.

The Strait of Hormuz remains a critical pressure point. Even small disruptions have sent prices swinging sharply, and renewed tensions could push markets into another surge.

Amrita Sen, founder of the Energy Aspects think tank, warned traders may have misread the situation.

"Events over the weekend with Iran firing on merchant vessels and shutting the strait again highlight just how precarious the situation is," Sen said.

She added that oil prices could rise again as markets reopen.

Escalation at Sea and Growing Military Tensions

Reports of maritime disruption intensified over the weekend, with tanker traffic forced to reverse course in contested waters near the Strait of Hormuz.

Iran has previously warned it could respond to strikes on its infrastructure by targeting regional energy assets, raising fears of a wider economic shock extending beyond the immediate conflict zone.

At the same time, Trump continued issuing threats of further strikes.

He warned that the US could target power plants and bridges, escalating a pattern of increasingly direct rhetoric throughout the conflict.

Regional Fallout and Political Pressure Mount

The war, now in its eighth week, has already killed thousands of people across multiple fronts, including US Israeli strikes on Iran and an Israeli invasion of Lebanon launched in parallel.

Iran has responded with missile and drone attacks against neighboring states hosting US military bases, further widening the conflict.

Inside the United States, pressure is building on Trump as inflation concerns grow and gasoline prices remain elevated, with political stakes rising ahead of upcoming elections.

European allies are also expressing concern that Washington’s negotiating approach risks producing a rushed agreement that fails to address deeper nuclear and regional security issues.

Tensions Rise in Islamabad Ahead of Expected Arrival

Pakistan, acting as a key mediator, has stepped up preparations for potential negotiations. Reports indicate heightened security measures in Islamabad, including restricted transport and increased military logistics activity ahead of the expected US delegation arrival.

However, with Iran refusing participation and military tensions rising, the path toward diplomacy now appears increasingly uncertain.