Tehran retaliated by seizing two ships on Wednesday and releasing a video on Thursday of commandos in a speedboat storming a large cargo ship – which Trump later dismissed as Iran's "little wise-guy ships."
For now, it’s unclear when peace talks will resume. But the U.S. blockade underscores the fact that Hormuz – a route critical to Iran’s revenues and imports – isn’t just a weapon for Tehran, but also a significant economic vulnerability.
So should we abandon hopes that the strait will be fully reopened anytime soon? Perhaps. And even if it is, how long might it take for normal energy flows to resume? Likely months – possibly years.
That’s a major concern for the rest of the world, as oil demand destruction is mounting each day – particularly in Asia.
There are some big winners from all the supply disruption, though, most notably U.S. energy producers, who are seeking to fill a Qatar-sized hole in the global LNG market.
Perhaps paradoxically, there is also reason to believe that, over the long run, the Iran war could lead to more fossil fuel consumption – not less. While the crisis will likely accelerate the shift to renewables, the combination of spiking energy security concerns and greater fragmentation could ultimately lead to a less efficient, more voracious global energy system, pushing up demand for all fuel sources and leading to a new era of ever-more frequent energy shocks.
Oil and gas are certainly not the only commodities feeling the pinch from the Iran war. The conflict has already caused turmoil in the global aluminium market, with the fallout now spreading to both copper and nickel supply chains.
Turning back to global equities, the artificial intelligence boom and a mostly bumper earnings season promise to keep the rally humming despite the modest pullback yesterday.
But there are causes for concern. U.S. tech giants have driven the recent rebound – largely thanks to sky-high AI ambitions – but energy prices will likely be well above what hyperscalers were banking on only a few months ago, and this could eat into the profits being baked into their valuations.
Indeed, concerns about spending dogged the first of the ‘Mag 7’ to report this week: Tesla. While Elon Musk’s firm produced a positive free cash flow surprise, investors didn’t respond well to news that the tech juggernaut was upping its 2026 capex budget to more than $25 billion.
Many of the rest of the ‘Mag 7’ gang will report next week. With the Iran conflict putting upward pressure on inflation, investors will likely have questions about Big Tech's ability to continue generating strong returns if energy prices – and potentially interest rates – stay higher for longer.
And that, of course, brings us to the Federal Reserve, which is meeting next week for what could be Jerome Powell’s last outing as chair. This week we saw the long-awaited Senate confirmation hearing of Kevin Warsh, Trump’s nominee to replace Powell. It offered few surprises: Warsh reiterated his desire to gradually shrink the Fed’s balance sheet, sparred with Democrats about divestment and fielded questions about Fed independence.
While Warsh stated that Trump had never asked him to agree to any rate decision, the president told CNBC roughly an hour before the hearing began that he would be “disappointed” if Warsh did not lower rates immediately upon taking office.
Given that inflation is running above the Fed’s 2% target and could head higher amid the supply disruption in the Middle East, Warsh may face an impossible task if he wants to both restore price stability and please the president.
Meanwhile, consumers still appear to be handling the energy price spike fairly well, as U.S. retail sales in March rose more than expected. This was obviously driven partly by higher gasoline prices themselves, but bumper tax refunds meant that elevated prices at the pump didn’t erode spending in other categories as much as many feared. However, that buffer may not prove durable.
How long that cushion will be needed depends on when someone finally blinks in the Middle East showdown that – for now – appears nowhere near a resolution.
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