NEW YORK — International oil prices and U.S. Treasury yields jumped in a single session even as President Donald Trump repeated at the United Nations General Assembly that "Iran will reach a deal right after the November midterm elections." Working-level talks took place on the sidelines of the assembly, but markets leaned toward the view that Washington and Tehran will struggle to find common ground. As uncertainty over the war deepened following speeches by Trump and Iranian President Masoud Pezeshkian, concerns over inflation spread in tandem. The probability that the Federal Reserve will raise its benchmark rate outright at its Oct. 27-28 meeting of the Federal Open Market Committee also shot up to nearly 70%. With gasoline prices and mortgage rates in the U.S. continuing to climb, Republican lawmakers have begun fretting that public sentiment could swing in the final stretch of the midterm campaign.
Iranian President: "We Are Not Terrorists and Will Never Surrender to the U.S." — Oil Prices and Treasury Yields Surge Together
Brent crude futures for November delivery settled at $103.08 a barrel on the ICE Futures Exchange in London on the 23rd, up $3.83, or 3.86%, from the previous session. Brent had fallen to $99.25 a barrel the day before, its lowest since the 8th of this month, before recovering the $100 mark in a single day. On the New York Mercantile Exchange, U.S. West Texas Intermediate futures for November delivery also closed at $92.16 a barrel, up $1.64, or 1.81%. Both benchmarks rebounded for the first time since the 16th.
In global bond markets, the benchmark 10-year U.S. Treasury yield rose 0.17 percentage points to 5.135%, its highest since July 2007. The two-year yield, which is sensitive to monetary policy, touched 4.947% during the session, while the 30-year yield, the reference point for U.S. mortgages, rose to 5.415%, breaking through its previous peak. The yield on $70 billion of five-year notes issued by the U.S. Treasury reached 5.033%, the highest in 20 years, since June 2006. With both oil prices and Treasury yields spiking, all three major New York stock indexes fell — the Dow Jones Industrial Average by 0.68%, the Standard & Poor's 500 by 0.75% and the Nasdaq Composite by 1.13%.
Fueling the day's oil gains was anxiety that the U.S. and Iran will not easily produce a formula for ending the war. Trump stressed again in his keynote address to the high-level session of the General Assembly at U.N. headquarters in New York on the 22nd that "I believe a deal will be reached right after the election," but markets no longer believed such unsupported claims. Trump urged Iran to strike a deal, asking whether the U.S. would "make a deal with Iran and let them rebuild their nation and make it far greater than ever before, or wipe them out swiftly and never give them another chance to murder people and destroy nations, or drive them into hell with no chance of survival, no future prosperity and no hope for their descendants."
In his own keynote address to the assembly on the 23rd, Pezeshkian said: "We are victims of terror. My homeland, Iran, is where our revered supreme leader was assassinated without any legal basis or justification." He went on to raise his voice, saying he came "from an Iran where they even bombed schools, horrifically," and that "we merely defended ourselves; we are not terrorists." He added: "Our innocent people were targeted by cowardly attacks and aggression against our homeland, and we mounted a defense with all our strength. It was the United States and Israel that attacked us." Pezeshkian also held up photographs of former Iranian supreme leader Ayatollah Ali Khamenei, who was killed in U.S. and Israeli airstrikes, and of some 150 elementary school students.
Pezeshkian went further, hardening his resolve to fight to the end. "The United States believes it can bring Iran to its knees by mobilizing military force and economic sanctions, but this is a colossal miscalculation," he declared. "Throughout history the Iranian people have never yielded to any foreign hegemony, and we will never surrender to the United States." He also said: "We want nuclear technology solely for peaceful purposes and will never pursue nuclear weapons or other weapons of mass destruction. The United States is distorting our peaceful program and abusing it as a pretext to justify its military intervention and unjust wars in the Middle East." As Pezeshkian continued his sharp remarks, diplomats with the U.S. delegation seated at the front of the hall walked out together. The Iranian delegation had also left the hall the previous day in protest at Trump's criticism of their country. Pezeshkian delivered a speech at last year's General Assembly as well, referring to the war with Israel that broke out in June of that year.
U.S. Dismisses Condition of "Reopening Strait Within a Week"; Houthis Warn of Strikes on U.S. Bases if Saudi Arabia Is Backed
The rise in international oil prices and U.S. Treasury yields on the 23rd stemmed from more than Pezeshkian's hard-line remarks. News that Washington had rejected Tehran's negotiating offer to reopen the Strait of Hormuz within a week also weighed on financial markets.
Iranian Foreign Ministry spokesman Esmail Baghaei said on X, formerly Twitter, that "as an extension of the discussions held with the United States outside the General Assembly hall on the 22nd, another round of message exchanges and clarification of positions was conducted through Qatari mediators." The remark referred to a three-hour discussion of pending issues the previous day between Jared Kushner, Trump's eldest son-in-law, and Steve Witkoff, the president's Middle East envoy, and Iranian Foreign Minister Abbas Araghchi. Baghaei said the additional exchange of messages lasted about two hours and that "Iran's positions and conditions were conveyed to the U.S. side in a definitive manner that leaves not the slightest doubt or ambiguity on either side, so that diplomacy can be restored." The core conditions he disclosed were an end to hostile U.S. acts including the naval blockade and economic terrorism; an end to the war on all fronts; the return of frozen Iranian assets; and guarantees of safe passage through the Strait of Hormuz. With no mention of dismantling the nuclear program or shipping out highly enriched uranium, the terms were broadly similar to the memorandum of understanding on ending the war that the two countries signed in June.
Mohsen Rezaei, secretary-general of Iran's Supreme National Security Council and the country's security chief, warned in an interview with state broadcaster IRIB the same day that "neighboring countries must not interfere in the matter of Iranian flight operations and must not be drawn into America's game." He added: "If they intervene, we will restrict flights by aircraft from neighboring countries that cooperate with the United States." The comments were a response to U.S. Treasury Secretary Scott Bessent, who on the 21st said he would invoke secondary boycotts against providers of aviation services and warned that all Iranian carriers would be forced to halt operations entirely as of the 23rd. Iranian flights to Baghdad and to Muscat, Oman, were in fact canceled outright starting on the 22nd. Rezaei also called for a change in the U.S. posture as a precondition for lifting the closure of the Strait of Hormuz, vowing never to open the sea lane unless seven demands are met.
Israel's Channel 12 reported on the 23rd that the U.S. negotiating team had dismissed Iran's offer to reopen the Strait of Hormuz. According to the report, Iran gave Washington a one-week deadline to meet its demands. The resumed talks are thus retracing their earlier course from the outset amid a tug-of-war between the two sides.
To make matters worse, Yemen's pro-Iran Houthi rebels threatened to attack U.S. military bases and other targets if Washington intervenes in the conflict to support Saudi Arabia or attempts to lift the closure of the Bab el-Mandeb Strait. The Houthis now effectively control the Red Sea coast and the Bab el-Mandeb Strait at its entrance, putting Saudi Arabia's crude export route at risk.
Abed Mohammed al-Thawr, a Houthi military adviser, said in an interview with Agence France-Presse in the capital, Sanaa, that day: "If the United States intervenes militarily by mobilizing its fleet or tries to control the Bab el-Mandeb Strait, that will be a red line. If the United States gambles on helping Saudi Arabia, we will regard every U.S.-linked facility in the vicinity as a target, with no exceptions." He added: "For U.S. vessels, we will close the Bab el-Mandeb Strait completely. Iran is a friendly and brotherly ally to us, but it does not give us orders."
Trump, Facing Midterm Peril, Agonizes Over Diesel Export Ban; U.N. Assembly Fails to Turn the Tide
The Houthis deny it, but The Associated Press assessed that day that their campaign to seize the Red Sea coast can effectively be regarded as the work of Iran's Islamic Revolutionary Guard Corps. The report said evidence had emerged that the IRGC has gone beyond simply supplying weapons to the Houthis and is now involved even in front-line tactical command. The AP said the IRGC had previously stayed at a distance from the field, mainly handling strategic planning from behind the Houthis, but this time has effectively taken on the role of battlefield commander.
According to the report, an Iranian aircraft that landed at Sanaa airport in July after breaking through Saudi airstrikes carried a large number of IRGC advisers. They joined advisers from Hezbollah, the pro-Iran Lebanese militant faction stationed in Yemen, and others to prepare the current offensive.
The allied forces facing the Houthis, by contrast, have scattered into disarray amid a struggle for influence between Saudi Arabia and the United Arab Emirates. According to Axios, the U.S. online outlet, and The New York Times, Saudi Crown Prince Mohammed bin Salman Al Saud called Trump twice on the 10th to request airstrikes on the Houthis as the tide of battle worsened, and was turned down. Bin Salman again requested airstrikes on the Houthis by phone on the 17th, and Trump accepted this time, only to run into opposition from most of his aides.
With no solution in sight in the Middle East and diesel prices in the U.S. soaring, Trump has been left agonizing. According to The Wall Street Journal and the U.S. political outlet Politico, the phones of Trump and his aides rang nonstop on the 22nd and 23rd, as politicians and refining industry officials clashed over the question of a diesel export ban. Trump said during a bilateral meeting with Ukrainian President Volodymyr Zelenskyy at U.N. headquarters in New York on the 22nd that "I have also called for a ban on diesel exports" — a step that could cost major U.S. oil companies billions of dollars.
Unlike the companies, many Republican lawmakers say diesel exports must be blocked at least temporarily, arguing they face an enormous political liability ahead of the Nov. 3 midterm elections. The average U.S. consumer price for diesel climbed to $6.52 a gallon on the 22nd, up 16.2% from a month earlier and 76.7% from a year earlier. Within the party, Sen. Chuck Grassley of Iowa and former Rep. Mike Rogers, a Senate candidate in Michigan, are among those demanding a diesel export ban, and Senate Majority Leader John Thune of South Dakota has said he is willing to consider it.
Doubts are also being raised about whether a diesel export ban would help stabilize prices. Blocking exports could increase domestic supply in the short term, but analysts say that over the medium to long term, rising inventories would cut refinery output, driving gasoline and jet fuel prices even higher. That is seen as the reason Bessent gave a cautious answer while standing beside Trump the previous day, saying the administration was "looking at whether it is feasible and whether a full or partial ban would be effective."
Politico reported that the Trump administration is seriously considering a 90-day ban on diesel exports, but the White House denied it as "fake news." Energy Secretary Chris Wright said at an annual climate change conference held by the Times in New York that day that "we will not halt exports of U.S. diesel," while adding that "we can adjust diesel output from refineries somewhat." The remark hinted at voluntary export adjustments by the industry rather than an artificial, government-led export ban.
Mortgage Rate Tops 7%, October Hike Odds at 70%; Fed Officials Also Agree "More Tightening Is Needed"
With fuel prices rising quickly, solid U.S. economic growth continued to stoke inflation as well. S&P Global said its preliminary U.S. composite purchasing managers' index for this month came in at 58.4, up 2.4 points from 56.0 in August. That was the highest level in 62 months, since July 2021. A PMI reading above 50 indicates expansion in the private sector, while a reading below 50 indicates contraction.
S&P Global said the figure points to growth of about 5% on an annualized basis. The strong momentum showed up in both services and manufacturing. The services business activity index hit 58.7, a 59-month high. The manufacturing output index at 56.7 and the manufacturing PMI at 57.0 were also the highest in 53 months and 52 months, respectively.
As U.S. Treasury yields jumped on inflation concerns, U.S. mortgage rates kept climbing as well. According to the Mortgage Bankers Association, the average contract rate on 30-year fixed mortgages rose 0.15 percentage points in the third week of this month to 7.12%, the highest since May 2024. It was also the first time mortgage rates had exceeded 7% since late January of last year, just after Trump began his second term. As recently as Feb. 27, just before the Middle East war, the U.S. mortgage rate stood at only 5.98%.
Against that backdrop, the odds that the Fed will raise rates at its Oct. 27-28 FOMC meeting kept rising even during the General Assembly. According to CME FedWatch, the federal funds futures market on that day put the probability of a 0.25 percentage point hike at next month's FOMC meeting at 69.7%, up from 55.4% the previous day. The probability of at least a 0.25 percentage point increase by year-end rose to 93.5% from 89.5%.
Hawkish comments from Fed officials also came in succession. Boston Fed President Susan Collins wrote on LinkedIn on the 22nd that "taking account of all the information currently available, I see an increased likelihood that inflation will persist at levels well above 2%," and that "while price pressures have intensified, labor market conditions are solid overall and the unemployment rate remains low." Collins added that "with the labor market on firmer footing, monetary policy can appropriately focus on bringing down inflation that has been too high for the past five and a half years," stressing that "a somewhat more restrictive policy rate will help return inflation to target."
Richmond Fed President Tom Barkin, speaking at an event in Baltimore the same day, warned that "the U.S. economy has if anything grown firmer recently on the back of sustained consumption and solid growth," and that "the recent run-up in prices is not merely a temporary supply-chain factor such as energy or tariffs." Barkin added that "the risks around inflation still outweigh those around maximum employment."
Chicago Fed President Austan Goolsbee said at an Official Monetary and Financial Institutions Forum event in London on the 21st that "the boom in artificial intelligence data center construction is overheating demand across the economy and adding to inflation pressures," and that "if that overheated demand persists, the Fed may have to go beyond a single additional rate increase and tighten more boldly." Fed Governor Michael Barr echoed that view at an event hosted by the Chicago Fed on the 23rd, saying "further policy adjustment is likely to be needed to ensure inflation returns to target in a timely manner."
The Fed raised its benchmark rate by 0.25 percentage points to 3.75%-4.00% at its FOMC meeting on the 15th and 16th of this month. It was the first Fed rate increase in three years and two months, since July 2023. In the dot plot of the Summary of Economic Projections — the quarterly chart in which Fed policymakers mark their rate forecasts as dots — officials also put the median year-end rate at 4.125%, signaling they could raise rates once more at the two remaining meetings this year, in October and December.
Even with the leaders of the U.S. and Iran gathered in one place for the General Assembly, no clear path to ending the war emerged, leaving international oil prices and bond yields set for unsettled trading for some time. If the administration seeks to calm fuel prices and interest rates for the midterms without the fundamental remedy of stabilizing the Middle East, unexpected side effects could surface in markets. Above all, Trump's repeated assertion that "the war will end right after the election" appears to have become considerably harder to make count in the campaign.
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