DUBAI, United Arab Emirates (AP) — The U.S. military said Tuesday that Iran fired missiles at Kuwait and Bahrain that failed or were shot down, and that the U.S. launched strikes on an Iranian facility in response.

Iran fired missiles toward Kuwait and Bahrain, but failed to hit their targets, the U.S. said. The two fired at Kuwait fell apart en route, while U.S. and Bahraini forces intercepted the missiles aimed at Bahrain.

U.S. Central Command said it responded with strikes on an Iranian military ground control station on Qeshm Island in the Strait of Hormuz.

Iran’s paramilitary Revolutionary Guard said it had targeted the headquarters of the U.S. Navy’s 5th Fleet in Bahrain and another country in its attack, without naming Kuwait. It said it launched its attack in response to the U.S. firing a missile into the engine room of another oil tanker trying to reach Iran despite the U.S. blockade.

“We had previously warned that in case of aggression, the response would be different and more severe, and we acted accordingly,” the Guard said in its statement.

Central Command also said it “downed multiple drones” launched by Iran targeting American forces in Kuwait.

The attacks happened after Iran stopped communicating with mediators about extending a ceasefire in the war with the U.S. and Israel, according to reports Tuesday from two semiofficial Iranian news agencies. President Donald Trump disputed the claim and said talks were continuing.

The reports by the Fars and Tasnim news agencies, both believed to be close to the Guard, came as tensions flared in Israel’s separate-but-related fight against the Iranian-backed militia Hezbollah in Lebanon.

A regional official involved in the mediation, speaking on condition of anonymity to discuss the talks, told The Associated Press that Iran had not communicated at all on Tuesday after saying that a ceasefire needed to be enforced in Lebanon for negotiations to continue.

Trump says talks ‘going on continuously’

Trump called reports of a cessation in talks “false and erroneous.”

“The conversations between us have been going on continuously, including four days ago, three days ago, two days ago, one day ago and today,” Trump said in a social media post. “Where they lead, one never knows, but as I told Iran, ‘It’s time, one way or another, for you to make a Deal.”

U.S. Secretary of State Marco Rubio did not address the reported cutoff in communications as he testified at a congressional hearing in Washington. Instead, he sounded an optimistic note about the nuclear dimension of the negotiations, while cautioning that there’s no guarantee of reaching “a deal that’s acceptable.”

Iran has been trying to increase pressure on Trump over negotiations on the Iran war ceasefire and loosening the Islamic Republic’s chokehold on the Strait of Hormuz and the oil, gas and other commodities that normally pass through it. Trump then could potentially push Israeli Prime Minister Benjamin Netanyahu to halt or slow the advance of his forces, which have moved deeper into Lebanon than at any time in over a quarter of a century.

The conflicts have increasingly become conjoined, as Iran insists that any potential truce in the war there must also quell the fighting in Lebanon.

Israel and the U.S. maintain the fighting in Lebanon is separate from the Iran war talks.

Inflation takes an economic toll on Iran

Meanwhile, year-on-year inflation in Iran reached a level in May unseen since World War II, underlining the economic pain average Iranians are facing. While the U.S. is eager to ease the Islamic Republic’s grip on the strait — through which a fifth of all traded oil and natural gas passed in peacetime — Iran faces economic challenges as its oil-backed economy remains under a U.S. naval blockade.

Economic pressure touched off nationwide protests in Iran in 2017 into 2018, when rising food prices sparked demonstrations that killed over 20 people and saw hundreds arrested. The next year, an increase in government-subsidized gasoline prices caused protests that saw over 300 people reportedly killed.

Then came the protests over the collapsing value of Iran’s currency, the rial, at the start of this year. They were the most intense demonstrations to shake the Islamic Republic since its 1979 revolution and the chaotic years that followed. Iran’s theocracy met January’s protests with a crackdown on demonstrators in January that killed over 7,000 people, according to activists’ estimates.

Now, even as hard-liners hold gun-handling workshops and organize marriages under the shadow of a ballistic missile to bolster spirits, experts note there could be new demonstrations if people find themselves priced out of feeding their families.

“I have no doubt that if Trump leaves (Iran without a formal peace deal) … most probably, we will see something like January by the end of summer because of the economic and social situations,” analyst Mohsen Jalilvand said in a video published by Iran’s Fararu news website.

Iran faces skyrocketing inflation

Iran’s Central Bank said the consumer price index, which measures a basket of goods and services, reached 77.2% in May compared with the year before. The rate is 8.5% higher than in April, the bank added. Inflation in daily and general needs — like medicine, taxi fares, tobacco and communication fees — rose 113.8% from the year before.

A private economic think tank in Iran, the Bamdad Institute of Economic Studies, described the current figures as “an unprecedented rate since World War II.” Iran’s Central Bank did not acknowledge the significance of the figures.

The previous record came in 1942. During the war, the British and Soviets invaded Iran and took over its railway, disrupting food supplies. The lack of food, worsened by a poor harvest, sparked hyperinflation and a famine. Hunger and a typhus outbreak killed many.

Airstrikes this year have greatly damaged Iran’s businesses and its oil industry, Meanwhile, the U.S. blockade has been targeting Iranian crude oil shipments trying to reach the international market, a key source of hard revenue. Tax revenues have been depressed by businesses struggling even after the fighting paused.

The rial, which traded at 32,000 to $1 in 2015, now trades at over 1.7 million to $1.

“We will definitely have higher prices,” Iranian President Masoud Pezeshkian warned in May. “We are fighting, and we must accept this hardship.”

Tehran-based economist Saeed Leilaz, speaking to the AP, warned that annual inflation in Iran could reach 80%.

“Iran’s society cannot tolerate above 25%” annual inflation, he said.

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Karimi reported from Tehran, Iran. Magdy reported from Cairo. Associated Press writers Jennifer Peltz in New York and Aamer Madhani and Konstantin Toropin in Washington contributed to this report.