The United States said on Sunday that it had seized an Iranian cargo ship that tried to run its blockade and Iran said it would retaliate, raising the possibility that the ceasefire between the two countries might not last for even the two days it is set to remain in force.

Efforts to build a more lasting peace in the region likewise appeared to be on shaky ground, as Iran said it would not participate in a second round of negotiations that the US had hoped to kick off before the ceasefire expires on Tuesday.

A weeks-long blockade of shipping that has driven global oil prices higher likewise might remain in place.

The United States has maintained a blockade of Iranian ports, while Iran has lifted and then reimposed its own blockade on marine traffic passing through the Strait of Hormuz, which typically handles roughly one-fifth of the world's oil supply.

The US military on Sunday said it had fired on an Iranian-flagged cargo ship as the vessel sailed toward Iran's Bandar Abbas port. "We have full custody of their ship, and are seeing what's on board!" US President Donald Trump wrote on social media.

Iran's military said the ship had been travelling from China. "We warn that the armed forces of the Islamic Republic of Iran will soon respond and retaliate against this armed piracy by the US military," a military spokesperson said, according to state media.

Iranian state media also reported that Tehran had rejected new peace talks, citing the ongoing blockade, threatening rhetoric, and Washington's shifting positions and "excessive demands."

"One cannot restrict Iran's oil exports while expecting free security for others. The choice is clear: either a free oil market for all, or the risk of significant costs for everyone," Iran's First Vice President Mohammadreza Aref wrote on social media.

Trump had earlier warned Iran that the United States would destroy every bridge and power plant in Iran if Tehran rejected his terms, continuing a pattern of such threats throughout the war.

Iran has said that if the United States were to attack its civilian infrastructure it would hit power stations and desalination plants of Gulf Arab neighbours.

Brent crude futures jumped about 7 percent to US$96.85 a barrel and S&P 500 futures fell about 0.9 percent in early Asian trading, as investors dealt with conflicting messages about the war.

Trump said his envoys would arrive in Islamabad on Monday evening, one day before a two-week ceasefire ends. A White House official had said the US delegation would be headed by Vice President JD Vance, who led the war's first peace talks a week ago, and also include Trump's envoy Steve Witkoff and son-in-law Jared Kushner. Trump had separately told ABC News and MS Now that Vance would not go.

Pakistan, which has served as the main mediator, appeared to be preparing for the talks. Two giant US C-17 cargo planes landed at an air base on Sunday afternoon, carrying security equipment and vehicles in preparation for the US delegation's arrival, two Pakistani security sources said.

Municipal authorities in the capital city of Islamabad halted public transport and heavy-goods traffic through the city. Barbed wire was rolled out near the Serena Hotel, where last week's talks were held. The hotel told all guests to leave.

The apparent diplomatic setback could set the stage for a renewed surge in oil prices when markets reopen after the weekend.

Now in its eighth week, the war has created the most severe shock to global energy supplies in history, sending oil prices surging because of the de facto closure of the strait.

Thousands of people have been killed by US-Israeli strikes on Iran and in an Israeli invasion of Lebanon conducted in parallel since the war began on February 28. Iran responded to the attacks with missiles and drones against its Arab neighbours that host US bases. Iran's parliament speaker, Mohammad Bagher Ghalibaf, who has led Iran's side in the talks, had earlier said the two sides had made progress but were still far apart on nuclear issues and the strait.(Reuters)



Edited by Cecil Wong