Markets brace as Trump-Xi talks hold key to Iran conflict

Global markets are on a knife’s edge as President Donald Trump meets Chinese President Xi Jinping in Beijing, with the outcome potentially deciding whether a fragile 75-day-old conflict with Iran escalates into a wider war that could further spike energy prices and roil equities. The talks are seen as a critical inflection point after a month-old ceasefire has been tested by ongoing naval incidents.

“Our forces are at a high level of comprehensive readiness to confront any movement by the hostile enemy, the American and Zionist enemies, at any place and at any time,” Brigadier General Hassan Hassanzadeh, an Islamic Revolutionary Guard Corps commander, said after recent military drills, according to Iranian state media.

The risk of a renewed full-scale conflict is already coursing through the global economy. Global oil inventories were drawn down by a record 129 million barrels in March and a further 117 million in April, prompting the International Energy Agency to warn of “future price spikes ahead.” In the U.S., the Producer Price Index surged 6.0 percent for the 12 months ending in April—the highest since December 2022—pushed by a 15.6 percent monthly jump in gasoline prices.

At stake in the Beijing summit is whether China, Iran’s largest oil customer, will exert its considerable leverage to bring Tehran to a diplomatic solution or stand aside, potentially giving Washington a pretext for further military action. A breakdown in talks could see a return to open conflict, threatening the passage of a fifth of the world’s daily oil consumption through the Strait of Hormuz and risking significant upheaval in financial markets.

White House Narrative vs. Intel Reality

The Trump administration has publicly projected an image of a crippled Iranian military, a narrative that is sharply at odds with classified intelligence assessments. Defense Secretary Pete Hegseth declared on April 8 that the U.S.-Israel campaign had “decimated Iran’s military,” a sentiment echoed by President Trump, who said Iran had “nothing left in a military sense.” Mr. Trump recently called media reports to the contrary “virtual treason.”

However, U.S. intelligence from early May shows Iran has retained approximately 70 percent of its prewar missile stockpile and has restored operational access to 30 of its 33 missile sites along the vital Strait of Hormuz. The assessments also indicate that about 90 percent of Iran’s underground missile facilities are now “partially or fully operational.” This resilience stems partly from a U.S. tactical choice to seal off many hardened facilities rather than destroy them, a decision made to conserve limited stocks of bunker-busting munitions.

Economic Fallout and Diplomatic Deadlock

The conflict’s economic consequences are intensifying. The European Union’s energy commissioner has warned of a potential long-term jet fuel shortage, and U.S. consumer prices are accelerating, with annual inflation hitting 3.8 percent in April. The war has already cost U.S. taxpayers an estimated $29 billion, according to the Pentagon.

Despite the economic pressure, diplomatic efforts remain stalled. Iran has reportedly rejected a U.S. peace proposal as a “demand for surrender” and laid out five preconditions for talks, including the lifting of all sanctions and compensation for war damages—terms the Trump administration is highly unlikely to accept. As Mr. Trump arrived in Beijing, he downplayed the need for China’s help, telling reporters, “We have Iran very much under control.” Yet, his administration has also sanctioned Chinese firms for aiding Iran, highlighting the complex and contradictory nature of the U.S. approach. The summit's outcome will reveal whether a diplomatic path remains or if markets must brace for another wave of conflict.

This article is for informational purposes only and does not constitute investment advice.