Why did Iran reject second round of talks with US? What are the unresolved issues?

The prospect of a second round of negotiations between the United States and Iran hangs in the balance as both sides remain deeply divided on several critical issues, even as a fragile ceasefire approaches its expiration.

Diplomatic efforts, which were expected to resume in Pakistan, are clouded by uncertainty and conflicting signals.

While there have been intermittent signs of engagement, the fundamental disagreements between Washington and Tehran remain unresolved, making any immediate breakthrough unlikely.

Why talks are in doubt, for now

The United States had announced plans to send a high-level delegation to Pakistan for another round of discussions aimed at de-escalating the conflict.

US Vice President JD Vance was expected to lead the American team, alongside senior figures including envoy Steve Witkoff and Jared Kushner, who had been involved in the first round of negotiations.

More from Explainers

The Gulf’s borrowed shelter: What the Iran war is really exposing

De-dollarisation: The beginning of the end of American hegemony

However, statements from US President Donald Trump later cast uncertainty over Vance’s participation, creating confusion.

On the ground in Islamabad, preparations appeared to be underway regardless of the ambiguity. According to Pakistani security sources, large US military cargo aircraft arrived carrying equipment and vehicles intended to support the visiting delegation.

Security measures in the capital were significantly tightened, with restrictions placed on public transport and heavy vehicles. The Serena Hotel, which hosted the earlier round of talks, was cleared of guests, and surrounding areas were fortified with barbed wire.

Despite these visible preparations, Iran has not confirmed its participation.

Reports from Iranian state media indicated that Tehran had rejected the idea of resuming talks under current conditions, citing the continuation of US pressure tactics, including a naval blockade and what it described as shifting and excessive demands from Washington.

The ceasefire, which had been brokered to create space for negotiations, is due to expire shortly, on Wednesday. Both sides have accused each other of breaching its terms, further eroding trust.

Concerns about its durability escalated after a series of confrontations at sea, including the US interception of an Iranian cargo vessel attempting to navigate through restricted waters.

"We have full custody of their ship, and are seeing what's on board!" Trump wrote on social media.

Iran responded with a warning of retaliation. "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.

Nuclear programme remains the central sticking point

At the heart of the dispute lies Iran’s nuclear programme, which continues to be the most contentious issue in negotiations. The fate of Iran’s stockpile of highly enriched uranium has emerged as a key obstacle.

Trump suggested earlier that Iran had agreed to transfer its stockpile to the United States. However, Iranian officials swiftly rejected the claim, with one senior figure describing such a proposal as a “non-starter.”

Tehran is estimated to possess around 400 kg of uranium enriched to 60 per cent, a level that has raised concerns in Washington and among its allies.

One of the proposals discussed during earlier talks involved linking the transfer of this stockpile to economic concessions, including the unfreezing of Iranian assets.

According to sources familiar with the discussions, Iran has sought sanctions relief amounting to more than $20 billion, a demand that remains unresolved, reported CNN.

Equally contentious is the question of how long Iran should suspend its uranium enrichment activities. The United States has pushed for a prolonged halt, proposing a suspension period of up to 20 years.

Iran, however, has countered with a significantly shorter timeframe of five years, which US officials have deemed insufficient.

Iranian representatives have also rejected the notion of indefinite restrictions, arguing that such measures would violate their rights under international law. "Trump says Iran cannot make use of its nuclear rights but doesn't say for what crime. Who is he to deprive a nation of its rights?" Iranian President Masoud Pezeshkian was quoted as saying.

Strait of Hormuz, a critical flashpoint

Another major point of contention is the status of the Strait of Hormuz, one of the world’s most important maritime chokepoints. The narrow waterway typically facilitates the transit of approximately one-fifth of global oil supplies, making it a vital artery for international trade.

In recent weeks, the strait has been subject to repeated disruptions. Iran initially announced that it would reopen the route after a period of closure, offering some relief to global markets.

However, the situation quickly reversed, with Tehran reimposing restrictions on maritime traffic in response to the continued US blockade of its ports.

Iran has argued that it cannot be expected to allow free passage for international shipping while its own exports are constrained. This position has been articulated by senior officials.

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

The standoff has resulted in highly inconsistent shipping activity. Data from maritime analytics firms showed that more than 20 vessels passed through the strait on Saturday, marking the busiest level of traffic since early March.

These included tankers transporting crude oil, liquefied petroleum gas, refined products, and other commodities.

Among the vessels were carriers transporting LPG to destinations such as China and India, as well as tankers shipping naphtha, crude oil, and petroleum derivatives to markets across Asia, Europe, and Africa. Specific shipments included hundreds of thousands to millions of barrels of oil products, as well as fertilisers and industrial materials.

Despite these movements, overall traffic remains significantly below normal levels.

How markets are seeing volatility

Oil prices have surged as traders respond to the risk of prolonged disruptions in the Gulf. Brent crude futures climbed sharply, reflecting concerns about supply constraints.

Equity markets have also experienced fluctuations. While some regional markets in Asia have shown resilience, advancing toward record levels, others have faced downward pressure.

Futures linked to major US and European indices have declined amid heightened geopolitical risk.

Currency and bond markets have also reacted to the evolving situation. Movements in US Treasury yields and the dollar have reflected shifting investor sentiment, with traders balancing risk aversion against expectations of economic resilience.

Financial institutions have begun to factor in the potential long-term consequences of the conflict. One major Australian lender flagged a significant impairment charge, citing concerns that the war could lead to increased financial stress and rising bad debts.

What the toll of war has been so far

The conflict, which began in late February, has had far-reaching consequences. Military operations involving US and Israeli forces have targeted sites within Iran, while a parallel Israeli campaign in Lebanon has expanded the scope of the confrontation.

According to available information, thousands of casualties have been reported as a result of these operations. Iran has responded with missile and drone strikes targeting Israeli positions and facilities in neighbouring countries that host US military bases.

The escalation has raised concerns about a broader regional conflict, particularly given warnings from Iranian officials about potential retaliation against critical infrastructure. Tehran has indicated that attacks on its civilian facilities could prompt strikes on power stations and desalination plants in Gulf countries.

At the same time, Trump has issued warnings of further military action if Iran refuses to accept US terms, including threats targeting key infrastructure. These statements have been met with strong opposition from Iranian leaders.

What next

While both sides have acknowledged that some progress was made during the initial round of talks, significant gaps remain. Iran’s parliament speaker Mohammad-Bagher Ghalibaf said, “On some issues, conclusions have been reached in the negotiations, and on others not; we are still far from a final agreement."

European allies have also expressed concerns about the direction of the talks. There are fears that the United States may be seeking a rapid agreement that addresses immediate issues without resolving underlying technical and political challenges, potentially leading to prolonged follow-up negotiations.

The unresolved issues—ranging from nuclear policy and economic sanctions to maritime security — only put a spotlight on the depth of the divide between Washington and Tehran.

Also Watch:

With inputs from agencies