The closure of the Strait of Hormuz amid the ongoing Iran conflict has resulted in a significant oil supply shock, described by the head of the International Energy Agency (IEA) as the biggest energy security threat in history [1]. According to BNY’s Bob Savage, the disruption has removed around 13 million barrels per day of oil supply, with the key shipping route previously handling 20 million barrels daily now effectively under a double blockade [1]. Vessel traffic through Hormuz has dropped, with reports of Iranian gunboats firing on commercial ships and the U.S. intercepting multiple oil tankers in the region [1].
The blockade has led to rising crack spreads for gasoline and diesel, increased Brent crude options activity, and a notable backwardation in futures, with June-July backwardation reaching $6.50 overnight [1]. Brent crude oil prices have climbed to near $104 a barrel, the highest since April 7, though still below the March peak of around $120 a barrel [2]. The disruption is expected to impact global growth, push up inflation, and risk fuel shortages, particularly in Europe where jet fuel supplies could run short within weeks [1]. Emergency stock releases are providing temporary relief, but IEA’s Fatih Birol emphasized the need to reopen the strait and urged governments to diversify energy sources and consider demand reduction measures if shortages persist [1].
Market reactions include firmer USD performance against major currencies, supported by higher crude oil prices and rising global bond yields, as central bank rate expectations adjust upward [2]. Brown Brothers Harriman’s Elias Haddad notes that while the energy supply shock persists, the worst may be over, citing the indefinite extension of the US ceasefire and the US's 'Open for All or Closed to All' navigation policy as factors that could accelerate the reopening of the Strait of Hormuz [2]. Haddad expects interest rate differentials to keep the US Dollar Index (DXY) anchored within its established 96.00–100.00 range [2].
The duration and escalation of the conflict remain central to oil price risks and backwardation dynamics, with markets closely monitoring commodity prices and economic data for further clues about growth and inflation [1].
CONCLUSION
The closure of the Strait of Hormuz has triggered a major oil supply shock, driving up prices and fueling market volatility. While emergency measures offer temporary relief, the outlook hinges on the conflict's duration and the potential reopening of the strait, with analysts divided on whether the worst of the energy shock has passed. Markets remain highly sensitive to further developments in the region.