Thank you for joining our continuing live coverage of the war in the Middle East.

Here’s a recap of the latest developments:

• The US has seized control of an Iranian container ship, Donald Trump says, after it tried to evade the American naval blockade of the Strait of Hormuz. Trump said the Navy ship “stopped them right in their tracks by blowing a hole in the engine room”.
• The US president also announced on social media earlier today that a delegation, including Vice President JD Vance, will travel to Pakistan on Monday (Washington time) for a second round of negotiations with Iran.
• However, Iran has not confirmed that it will participate in the talks, as state media reported that no agreement had been reached to attend the meeting.
• Trump also threatened strikes on Iranian power plants and bridges if a deal was not reached this week.
• Shipping remains at a standstill in the crucial Strait of Hormuz as Iran continues to enforce its blockade. Two tankers were forced by Iranian military forces to turn back on Sunday.
• Meanwhile, thousands of displaced Lebanese families are continuing to return home after a 10-day ceasefire that came into effect last Friday.

Despite Iran not confirming it will attend a second round of talks with the US, the military in Pakistan were making preparations.

Here’s the scene in Islamabad as US officials including JD Vance prepare to fly to Pakistan.

Chalmers says he expects inflation, economic growth and unemployment to worsen.

“We do expect inflation to be higher, we do expect growth to be slower, and slower growth typically, not always but typically, means higher unemployment,” he said. “That’s what we’re dealing with to be upfront with you.”

However, he said Australia’s labour market, which has remained relatively resilient with unemployment at 4.3 per cent, would put the economy in good stead as the oil shock continues to play out.

“As we work through these consequences which are already serious and could become severe, we also have some very substantial advantages,” he said. “Our labour market is a source of considerable strength which is a good foundation from which to face all of this uncertainty.”

Chalmers says the fuel excise cut will cost the federal budget about $2.5 billion, and has kept the door open to extending it, but says the government remains committed to finding savings.

“[The fuel excise cut] will be one of the bigger new spending items in the budget,” he said. [The budget] won’t be identical to what we were considering earlier in the year, but it will be ambitious. The savings package won’t be exactly the same as we might have been thinking a few months ago, but it will still be substantial.”

Chalmers said the fuel excise tax would be “temporary in one way or another”, but said all policies would remain under review.

Treasurer Jim Chalmers will not confirm reports in this masthead that the government is actively considering changes to the capital gains tax discount.

“We haven’t taken any decisions on those policies,” he said in response to a question about what he could guarantee for people who own investment properties. “There’s more work to do on our options for tax reform in this budget.”

However, Chalmers said the government was assessing its options ahead of the budget.

“We have been really up front for some time now in saying that we do think that there is intergenerational unfairness in the tax system and in the housing market,” he said. “I think the housing market is where some of those intergenerational issues are most obvious, and so we are working through a range of options to see if we can deal with them or address them in a responsible way.”

Chalmers has also announced the release draft legislation for a $1000 instant tax deduction for workers and “updated thinking” on the superannuation performance test.

“[The tax deduction] will cut back on paperwork, it’ll save time and money, it’ll provide a bit of tax relief as well,” he said. “It will benefit 6.2 million workers when they lodge a tax return next year. The benefit is up to $470 in the tax return, and it’s about $205 on average.”

The treasurer also said that while he had “absolutely no interest” in watering down or ditching the superannuation performance test, he would release details about the options available.

“There is no consensus here on the best way forward in the discussions that we’ve been having with the sector for some time. We would prefer a consensus, if one is possible, but at the very least, the paper that I’ll be releasing with Daniel Mulino soonish will give you an updated sense of our thinking here.”

One of the most significant savings in the upcoming federal budget will be in the National Disability Insurance Scheme, Treasurer Jim Chalmers says.

Ahead of a speech by Health Minister Mark Butler at the National Press Club on Wednesday, Chalmers signalled the NDIS, which is estimated to cost about $49 billion this year, would be a centrepiece of his budget next month.

“[Butler] will provide more than the usual amount of detail in advance of the budget,” he said. “We need to make sure that [the NDIS] is sustainable, and that’s what our efforts are all about. This has been a really big part of our pre-budget deliberations. It is easily the most important part of the savings package that we will present on budget night.”

Treasurer Jim Chalmers has signalled the federal budget will not deliver the savings or revenue the government anticipated a few months ago.

Speaking at a press conference in Canberra, Chalmers looked to soften the blow ahead of the federal budget next month as he comes under criticism for growing government spending.

“[The budget] won’t be exactly what we planned over the summer,” he said. “It would be strange if it was given how much has happened, particularly when it comes to these global developments. The savings package won’t be exactly the same as what we would have been contemplating over the summer, but it will be a substantial savings package.”

However, he said there would be tax reform, a productivity push, and some savings. “Cutting compliance costs is a big focus of the government and a big focus of the budget as well.”

Treasurer Jim Chalmers is addressing the media from Parliament House in Canberra.

The split between Israel and Europe continues to grow, with Spanish Prime Minister Pedro Sanchez issuing a public call for the European Union to halt a formal agreement with Israel that has underpinned close ties for three decades. Sanchez, speaking at a rally in Andalusia, said he would put his proposal to the EU in a bid to get all member nations to agree. This goes much further than his previous comments questioning the agreement.

“The time has come for the EU to break its Association Agreement with Israel,” he said on social media. “We have nothing against the people of Israel; quite the contrary. But a government that violates international law and, therefore, the principles and values of the EU cannot be our partner. NO TO WAR.”

Sanchez has criticised Israel over its attacks in both Gaza and Lebanon. His proposal would formalise the diplomatic breach between the two sides since their 1995 agreement, with implications for a significant trade relationship.

This was not an isolated move by Spain. Ireland has also criticised the agreement with Israel. And German Chancellor Friedrich Merz said last week that he urged Israel not to engage in “de facto annexation” of the West Bank, the Palestinian territory where Israeli settlers are in conflict with local communities. Five days ago, Italian Prime Minister Giorgia Meloni suspended her country’s defence agreement with Israel.

Reza Amiri Moghadam, Iran’s ambassador to Pakistan, has accused Trump of false diplomacy in a new post on X.

He said Trump could not double down on the US’ blockade of the Strait of Hormuz while claiming to be pursuing diplomacy.

“You cannot keep violating the international law, double down on your blockade, threaten Iran with further war crimes, insist on unreasonable demands, pace out with rethorics [sic] and pretend to be pursuing ‘Diplomacy’,” the post said.

The criticism follows Trump’s announcement on social media earlier today that a delegation, including US Vice President JD Vance, will travel to Pakistan on Monday (Washington time) for a second round of negotiations with Iran.