Iran’s majles (parliament) has just adopted a controversial law. This would allow the nation to seal off the Strait of Hormuz, responsible for around a third of all global oil trade, a nightmare scenario for American leaders. This movement comes during a time of increasing conflict between Iran and Western countries. It comes on the heels of increasingly aggressive U.S. military operations to destroy Iranian nuclear infrastructure. That makes the Strait of Hormuz absolutely indispensable to our economy and to the global economy. Each day, an average of 20 million barrels of oil and oil products travel through this crucial corridor.
Iran routinely threatens to seal off the Strait of Hormuz. In 2011 and 2012, various Iranian leadership figures—including then-Vice President Mohammad-Reza Rahimi—issued fiery rhetoric threatening to close the international waterway. The tensions escalated again in 2018 after the U.S. withdrew from the nuclear deal and reinstated sanctions against Iran, prompting warnings from Tehran about possible closures of the strait.
The U.S. region’s geopolitical landscape has become a minefield of uncertainty. Iran’s Foreign Minister has stated unequivocally that the country will defend its right to sovereignty by keeping all options literally on the table. He further indicated that the U.S. would take action in the Strait of Hormuz if challenged.
Yet for all these advancements, market observers are decidedly doubtful about the chances of Iran following through and shutting down the strait. GeoMacro Strategy’s chief strategist, Marko Papic, drove home the best point I heard. He threatened that should Iran attempt to close off this strategically important strait, the United States would retaliate swiftly and severely. He noted, “Tehran understands that, if they were to close the Strait, the retaliation from the U.S. would be swift, punitive, and brutal.”
Peter Boockvar, chief investment officer at Bleakley Financial Group, agrees. He thinks traders aren’t anticipating anything that would severely disrupt oil supplies moving through the Strait of Hormuz. It really is based on the reaction — that’s all — upon Iran’s action, and all the rest. Boockvar added that if Iran would renounce its bad military nuclear aims, it might foster the cessation of decades of failure. This change would go a massive way to stabilize markets.
If Iran decides to take a more belligerent approach, the consequences may be catastrophic for international oil markets. Papic warned that if Iran were to act aggressively, “oil prices go north of $100, fear and panic take over, stocks go down ~10% minimum, and investors rush to safe havens.”
The outlook is still fraught as traders take stock of possible Iranian retaliatory measures in the face of aggressive U.S. military incursions. The Strait of Hormuz has long been a flashpoint for U.S.-Iranian tensions. These disputes frequently occur between Iran and Western countries, fueled by concerns surrounding Iran’s nuclear development.
As these events play out, what the market seems to be pricing in right now is some measured sense of relief. U.S. bombings in the region have reduced potential nuclear threats that Iran poses to U.S. bases in the region, analysts tell Newsweek. Ed Yardeni, a noted economist, remarked on the geopolitical context, stating, “Geopolitically, we think that Trump has just reestablished America’s military deterrence capabilities, thus increasing the credibility of his ‘peace through strength’ mantra.”