US Israel Iran Conflict in 2026: Energy Markets, Ceasefire Talks and Rising Costs

Military action between the United States, Israel, and Iran has entered a third month. The conflict has already tightened energy supplies after the Strait of Hormuz closed. Petrol prices in the United States rose above $8 a gallon by late April. Ceasefire talks are running in parallel with fresh strikes, leaving markets focused on costs.

The fighting began on February 28, 2026, when US warplanes hit Iranian sites with Israel. The Pentagon later called the campaign "Operation Epic Fury." Ali Khamenei died within hours, according to the report. Days later, the Strait of Hormuz shut. About 20 percent of daily global oil shipments normally passes there.

A two-week ceasefire was announced on April 8, 2026. That same day, Israel said it launched its most powerful Lebanon attacks. Diplomats then met in Islamabad, with Pakistan hosting US-Iran negotiations. US Vice President JD Vance was set to lead Washington’s delegation. On May 24, Trump said talks were "largely negotiated".

On May 25, CENTCOM said it carried out new "self-defense" strikes. CENTCOM also said the ceasefire still remained technically active. The main disputes include Iran’s nuclear programme and the Strait of Hormuz. Trump demands Iran "never, ever" obtain bomb-grade nuclear material. Other issues include Hezbollah disarmament and Abraham Accords conditions.

The International Atomic Energy Agency has not resumed Iran inspections since June 2025. The agency warned any deal without inspection terms would be "an illusion of an agreement." Hamas and Hezbollah have rejected disarmament plans outright. Iran has also tied any wider deal to ending Israel’s Lebanon campaign. These positions have slowed progress in Islamabad.

Pentagon officials told Congress the first six days cost $11.3 billion. That was described as the priciest opening week since the Gulf War. Tomahawk cruise missiles cost $3.5 million each. Intercepting Iranian drones can cost far more than the drones. These figures have shaped scrutiny of defence spending.

CNN said the Pentagon’s $25 billion figure understated likely expenses. Acting Comptroller Jules Hurst III gave that figure to the House Armed Services Committee on April 29. CNN sources estimated a closer $40-50 billion after base damage and lost assets. Democratic lawmakers called the official figure "totally off." Cost debates continued alongside operations.

The Trump administration also requested a $1.5 trillion defence budget for fiscal year 2027. The request represented a 42 percent rise. It was described as the largest US military spending expansion since World War II. Penn Wharton analysts estimated the total economic impact could reach $210 billion. That estimate included the oil shock after the Strait closure.

Item	Figure	Source or context
First six days cost	$11.3 billion	Pentagon officials to Congress
Tomahawk unit cost	$3.5 million each	Weapon cost cited in report
Pentagon figure shared with House panel	$25 billion	Acting Comptroller Jules Hurst III, April 29
CNN source estimate of total cost	$40-50 billion	Includes base damage and destroyed assets
Requested US defence budget (FY2027)	$1.5 trillion	42 percent increase
Estimated total economic impact	$210 billion	Penn Wharton, includes oil shock

Strait of Hormuz and Iran economy under blockade

Iran’s economy had already weakened before the strikes began. Sanctions had reduced reserves, and the rial had fallen for years. Food inflation was running at 64 percent annually. The war then intensified the stress. The Strait of Hormuz became both a pressure tool and a trade bottleneck. Over 90 percent of Iran’s trade moves through it.

A US naval blockade on Iranian ports cut key export earnings. Oxford Economics estimated about 70 percent of export revenue was severed. Oil income had funded about a quarter of the government budget. Economists cited by Euronews said Iran could avoid full collapse. However, costs would include higher inflation, deeper poverty, and weaker services.

China, Iran’s largest trading partner, sharply reduced trade flows. Chinese customs data showed March 2026 trade at $184 million. That was an 80 percent annual fall. It was also 64 percent lower than the previous month. Tehran banks reportedly ran low on cash notes. Informal withdrawal limits of $18-$30 per day were reported in January.

Iran’s central bank issued a 10 million rial note. The note was the largest denomination in Iran’s history. At current exchange rates, it was worth about $5.26. The cash strain added to the wider effects of lost oil receipts. With trade disrupted, ordinary purchasing power continued to weaken. Pressure increased across households and small firms.

Lebanon also became a major front after early March attacks. Hezbollah launched drones and rockets at northern Israel, in support of Tehran. Israel responded with sustained air strikes across Lebanon. Lebanon’s health ministry said more than 3,200 people died, including 292 women and 211 children. More than one million people were displaced, many living in tents by Beirut’s seafront.

Israel said strikes targeted Hezbollah infrastructure and accused the group of using civilians as cover. Hezbollah denied that accusation. Reuters reported in early May that several thousand Hezbollah fighters died. The estimates were based on figures from within Hezbollah itself. On May 25, Benjamin Netanyahu said strikes would intensify, not reduce. Israel-Lebanon talks were expected to resume in Washington soon.

Trump’s messaging became part of the conflict’s public record. NPR analysis found Trump posted 30 times on March 1, 2026 alone. Across the first four months of 2026, Trump averaged nearly 19 posts daily. The total reached 2,249 posts, with Iran featured often. Posts shifted between threats and praise, sometimes within hours.

"If no agreement is reached, we go back to shooting - but bigger and stronger than ever before. And nobody wants that." The war has already killed Khamenei and damaged Lebanon’s stability. It has also strained Iran’s middle class and raised US costs into tens of billions. With the Strait of Hormuz disrupted, energy prices remained a core financial risk.