Iran says war unlikely as Trump warns he may 'finish the job'

Oil prices tumbled Wednesday on hopes of a US-Iran peace deal, even as President Donald Trump warned he may have to "finish the job" and Tehran said its forces were still "lying in wait with full magazines."

The mixed signals underscored the fragile state of talks aimed at ending a Middle East war that has shaken global energy markets and effectively closed the Strait of Hormuz.

Iran said a return to war was unlikely, while Trump told a televised White House cabinet meeting that Tehran wanted a deal but had not yet offered enough.

"Iran is very much intent, they want very much to make a deal. So far they haven't gotten there. We're not satisfied with it, but we will be," he said.

"Either that or we'll have to just finish the job."

Trump also appeared to direct a warning at Oman, a US ally and mediator in the conflict, when asked about a possible short-term arrangement allowing Iran and Oman to control the Strait of Hormuz.

"No, the strait is going to be open to everybody," Trump said. "It's international waters and Oman will behave just like everybody else or we'll have to blow them up. They understand that, they'll be fine."

The White House did not immediately clarify whether Trump had misspoken. Oman has played a mediation role in the war and has itself come under attack from Tehran.

Senior Iranian Revolutionary Guards official Mohammad Akbarzadeh said the likelihood of "war is low because of the enemy's weakness", but warned the military was "lying in wait with full magazines" if attacked, Tasnim news agency reported.

Trump, who said at the weekend a deal was close, also told the cabinet meeting he was in no rush.

- 'Complete fabrication' -

The Middle East war erupted in late February with US-Israeli strikes on Iran, sending oil prices soaring.

Hopes of an imminent deal sent benchmark oil contracts falling more than five percent Wednesday.

Global stocks mostly rose, with all three major US indices posting modest gains and fresh records, as investors looked past conflicting signals from Washington and Tehran.

Traders were also buoyed by a retreat in US Treasury yields as oil prices fell, while another surge in technology stocks added momentum to the rally.

Economists have warned that prolonged disruption in Hormuz could keep energy prices elevated, feed inflation and force central banks to raise interest rates.

Adding to optimism, Iranian state TV reported that Washington had committed in a draft framework to lift its naval blockade, restore traffic through Hormuz and withdraw US forces from the Gulf.

The report cited what it called a draft memorandum outline, but the White House dismissed it as "a complete fabrication".

A day earlier, Iran accused the US of breaching the ceasefire after the most serious strikes since the truce took effect, and warned it was ready to retaliate.

The US military said it launched "self-defence strikes" on Iranian missile sites and mine-laying boats overnight Monday to Tuesday.

Tehran's intelligence ministry accused the US and Israel of seeking to overthrow the Islamic republic, partition Iran, foment division and carry out sabotage.

- 'Will there be missile strikes?' -

Iran and the US have traded threats for weeks while negotiating through Pakistani mediation.

Neither side appears ready to compromise on the main sticking points: Hormuz and Iran's nuclear programme.

On Wednesday, the Revolutionary Guards' navy said only ships "willing to abide by Iranian order" could pass through Hormuz.

US Secretary of State Marco Rubio said Tuesday that a deal remained within reach, but that the Hormuz would be reopened "one way or the other".

Iranian authorities also partially restored access to the global internet Tuesday after a three-month shutdown.

"I do feel better now because I finally can use my favourite applications," said Hana, a 20-year-old student in Tehran who gave only her first name.

"At the same time, I have this concern that war might resume any minute and just cut me off again from my friends."

Amir, a 27-year-old software developer in the Iranian capital, also feared renewed fighting despite talk of a deal.

"I feel like nothing is certain yet," he said.

"The daily question is: Will there be missile strikes tonight?"

- Fighting expands in Lebanon -

In Lebanon, Israel launched broad strikes Wednesday and declared a huge swathe of the south a new combat zone, urging residents to leave.

The warning further strained an April 17 ceasefire that has done little to halt fighting between Israel and Iran-backed Hezbollah, which drew Lebanon into the war by attacking Israel in early March.

Iran says any peace accord must apply to Lebanon.

An Israeli military spokesman warned civilians to evacuate north of the Zahrani River, about 40 kilometres (25 miles) from the Israel-Lebanon border, "as all areas south of the river are considered combat zones".

Hezbollah said its fighters clashed with Israeli forces "at point-blank range" in a strategic town just beyond an Israeli-declared "yellow line" in south Lebanon.

Israeli Prime Minister Benjamin Netanyahu vowed Monday to "crush" Hezbollah, while army chief Lieutenant Colonel Eyal Zamir said Wednesday that Israel was "intensifying our operations" against the group.