The Strait of Hormuz is like a narrow bridge on a major highway. If it is blocked — or even if it is technically open but ships avoid it because it is too dangerous — the result is not just higher oil prices. There is a ripple effect on liquefied natural gas (LNG), fertilizers, and global shipping, which can later manifest as higher electricity bills, increased food prices, and weaker economic growth.
Why the strait matters: about 20 million barrels of oil per day (out of roughly 110 million consumed globally each day) pass through this strait. Additionally, a significant share of global LNG shipments and a substantial amount of fertilizers transported by sea cross the same corridor. Any disruption does not affect just one market: it simultaneously puts pressure on several critical supply chains.
How markets are pricing the risk: energy prices have risen because markets are adding a risk premium related to supplies that could be interrupted. However, prices also suggest that investors still expect the situation to be resolved relatively quickly. This expectation is reflected in a common commodity market pattern called “backwardation,” which occurs when the price of oil for immediate delivery is higher than the price for future delivery (for example, six to twelve months ahead). In short, the market is saying: “Tough situation now, but things are expected to improve in the future.”
The decisive factor is time: even if markets expect improvement later in the year, prices can still fluctuate sharply day to day. Every new headline on the front pages can change expectations about whether ships will continue to transit the strait. The most important factor is how long the disruption lasts. The next two to four weeks will likely be crucial.
Scenario 1: rapid resolution (about three weeks): this is the contained damage scenario. Oil and gas prices spike initially, but reserves and emergency measures limit actual shortages. Shipping routes adapt and prices gradually retreat as the immediate risk fades. In this scenario, the spot price of oil could return to more normal levels later in the year.
Scenario 2: prolonged disruption (until April): in this scenario, the situation evolves from a temporary market alarm to a broader economic slowdown. Several pressures begin to build simultaneously: emergency reserves, such as strategic oil stocks, are used faster than expected, storage and logistics constraints tighten, and Gulf producers may have to reduce production simply because moving barrels becomes more difficult or risky. At that point, the issue is no longer just higher oil prices. It becomes a multi-market shock involving oil, LNG, fertilizers, and shipping — pushing inflation up while growth slows.
Scenario 3: extreme and prolonged risk (May/June). This is a less likely but more severe scenario. If the disruption lasts several months, the effects would compound: sharp increases in oil and natural gas prices, rises in petrochemical and fertilizer prices, significant demand destruction as consumers and businesses cut back (creating a growing risk of global recession), and increased financial stress in emerging markets exposed to energy and food shocks. Oil-exporting emerging markets — such as some Latin American economies — would benefit.
Equities: It may be too early to call it a correction. Short-term prospects for equity markets are highly sensitive to how quickly the strait stabilizes. A rapid reopening could trigger a sudden price rally as the geopolitical risk premium fades. But if navigation conditions do not improve significantly within a few weeks, markets could face higher volatility and deeper downward pressure. An additional complication: this shock arrives while investors are already managing many other uncertainties — from the investment cycle related to artificial intelligence to trade policies and doubts about private markets. When the bucket of uncertainty is already full, markets tend to be less forgiving.
Macro and rates: the main risk we see is higher and more persistent inflation. Our base case does not necessarily foresee an immediate recession. The most relevant macro risk is persistent inflationary pressure. If disruptions in energy and shipping persist, inflation could remain elevated longer, slowing the pace at which central banks reduce interest rates. This creates a difficult mix: growth slows, inflation stays higher longer than expected, and monetary policy support arrives later than markets hope.
United States vs. Europe. Europe is generally more vulnerable because it is more sensitive to imported energy. The United States is structurally better positioned because it produces much of its own energy and can even benefit marginally as an exporter when global prices rise.
Fertilizers and food: delayed impact. One of the most underestimated channels is fertilizers. If shipments are delayed or prices rise sharply, farmers may use less fertilizer, crops could be reduced later in the season, and food prices might increase months after the initial energy shock. Because fertilizer use is highly seasonal, missing the application window cannot always be fully recovered later.
Oil supply response: shale contributes, but it is not an immediate solution. Expectations of higher future prices can incentivize U.S. shale oil producers to increase supply. However, the response may be slower than in previous cycles. Many producers today prioritize capital discipline and shareholder returns over rapid production growth, which limits how quickly supply can increase.
Private credit: high media risk, but no immediate fundamentals collapse. The immediate risk in private credit concerns liquidity and sentiment more than fundamentals. Semi-liquid investment vehicles, which might face increased redemption requests, could come under pressure if volatility rises. Deeper fundamental risks — such as refinancing difficulties in some sectors, for example software — are more likely to emerge later. Private credit may not be the first domino to fall, but it can become an amplifier if the macroeconomic environment worsens.
Investment insights: the most effective way to interpret the situation is to adopt a scenario-based approach. If tensions ease quickly, the risk premium could shrink just as fast, energy prices would fall, inflationary pressure would decrease, and risky assets would show a recovery. If the disruption persists, the episode turns into a multi-commodity supply shock involving oil, LNG, fertilizers, and shipping. Such a context usually implies greater volatility, stronger pressures on import-dependent regions, and relatively better performance in energy-related sectors, while more consumption-sensitive areas face the greatest difficulties.
