This issue came from a subscriber question. Several of you asked about the Strait of Hormuz — here is the argument.

One Number

Time needed for mine clearing.  ·  Pentagon / Washington Post

A ceasefire is not the same as an open Strait - and the market is treating them as one.

One Argument

One chokepoint, one fifth of the world’s energy.

The International Energy Agency has already called the US - Iran conflict the largest oil disruption in the history of the global market. The Gulf handles a disproportionate share of global energy trade. The Gulf states hold 48% of global proven oil reserves and produced 33% of world oil in 2022, as reported by the FT. About 20% of global seaborne oil trade and about 20% of global LNG used to pass through the Strait of Hormuz. Before the conflict about 3,000 vessels used the Strait monthly. Now Iran has reduced monthly vessel transits to roughly 150 - about 5% of the pre-conflict level. Moreover, according to the FT, about 1,000 vessels and 20,000 crew members have been stranded in the Gulf.

Reopening of the Strait of Hormuz requires three conditions to be met in this very order - a political resolution, physical mine-clearance and insurer return. These are sequential steps and none of them has been met yet. Even after the first two conditions are met the insurers, according to Al Jazeera reporting, will require normal vessel movement to resume “over a sustained period, not just isolated transits” before returning to standard pricing.

So far the markets have been expecting a quick resolution. The energy contracts for later delivery are cheaper than near-term contracts implying that traders are expecting prices to normalise within months. The European Central Bank and the Dallas Fed do not share in that optimism. The ECB has already revised its headline 2026 inflation forecast up to 2.6%. Even after the ceasefire was reached at the end of April it was not convinced. The Bank cautioned that “the upside risks to inflation and the downside risks to growth have intensified”. The Dallas Fed model suggests that the closure of the Strait running for three quarters would add 1.47 percentage points to Q4/Q4 headline personal consumption expenditure (PCE) inflation in 2026. The ECB is not pricing a quick resolution. Neither is the Dallas Fed. Meanwhile, markets are pricing the ECB deposit rate reaching at least 2.5% by year-end, a 50bp increase from the current 2%.

OPEC+ countries have already pledged to increase oil output by 206,000 barrels per day to mitigate shortages. IEA members have already coordinated release of 400 million barrels of oil from their emergency stockpiles. Saudi Arabia and United Arab Emirates have alternative routes but both countries have indicated that their capacity is not sufficient to compensate for the volumes shipped through the Strait. However, the incentive for all the parties to resolve the crisis is overwhelming. History suggests that every previous Hormuz crisis has resolved faster than generally expected.

The buffer has so far prevented acute shortages in Western markets. However, there is no solution yet to what happens when inventories run down and the three reopening conditions are still unmet. The Bloomberg Economics’ SHOK model suggests that oil prices of $110 per barrel will add about 1 percentage point to euro area inflation and reduce GDP by about 0.6%; at $170 per barrel the impact roughly doubles.

One Position

The end of hostilities in the Gulf region will not mean an immediate restoration of normal commercial energy flows and markets returning to the pre-conflict equilibrium. Those two events are separated by at least six months of sequential conditions, as confirmed now by the Pentagon.

This position reverses if mine-clearance is completed and insurance underwriters return to standard war-risk pricing earlier. That combination, not just a ceasefire announcement or peace agreement, would validate the market’s timeline.

If your planning and budgeting assumes normalisation by Q3 2026, the Pentagon’s six-month clock - which has not yet started - is the number worth knowing.

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