U.S. and Iran Exchange Fire as UAE Hit by Drones; Project Freedom Escalates Beyond Escort Duty

Tehran handed Washington a 14-point counter-proposal through Pakistani envoys late Thursday night, answering a nine-point U.S. plan aimed at reopening the Strait of Hormuz. Semiofficial Iranian outlets Tasnim and Fars said the document promised to dial back military activity if sanctions were eased. Pakistani diplomats ferried the proposal, the first formal reply after weeks of quiet back-channel chatter.

Trump dismissed it before boarding Air Force One on Friday. "I can't imagine that it would be acceptable," he told reporters. "They haven't paid a big enough price for what they have done to Humanity, and the World, over the last 47 years." Hours later the White House unveiled Project Freedom, which it calls a "humanitarian gesture" for Iran and its neighbors.

U.S. Central Command said Sunday that warships had entered the Persian Gulf to escort merchant traffic. Iranian Revolutionary Guard fast boats shadowed the task force from a distance, creating a floating standoff that captains described as threading between two powder kegs. That posture did not last.

By Monday afternoon U.S. and Iranian units were trading fire, Fortune AI reports, without specifying casualty numbers. The engagement marks the first direct exchange since the 1988 Operation Praying Mantis and vaults Project Freedom from a protective mission to an active combat role.

While naval guns flashed in the strait, waves of drones slammed into energy and port facilities across the UAE. Local emergency services logged multiple impacts at Jebel Ali port and the Al-Dhafra air base, sending fireballs into the night sky and forcing partial shutdowns of oil loading terminals. Crude futures jumped 6% on the news. No group claimed responsibility, but U.S. officials privately point to Tehran-backed militias in Iraq and Yemen.

The twin shocks—live fire in the Gulf and burning fuel depots on the Arabian Peninsula—sent traders scrambling. Brent crude leapt $4.80 to $84.60 a barrel, the biggest one-day gain since the 2022 Ukraine invasion. Shipping insurers slapped war-risk premiums on every tanker transiting Hormuz, adding roughly $400,000 to the cost of a single voyage.

Pentagon planners are drafting rules of engagement that would allow U.S. vessels to fire preemptively if they detect drones or fast boats preparing to attack. Tehran, for its part, has moved additional missile batteries to the coast and warned that any strike on Iranian soil will be answered "ten-fold." With commercial captains already rerouting around the Cape of Good Hope, the world’s busiest oil choke point is morphing from a diplomatic flashpoint into a shooting war.