What if the Strait of Hormuz doesn’t reopen?

Over the past three months, the U.S. president has claimed at least 38 times that negotiations with Iran are making real progress. Yet the Strait of Hormuz remains closed, and the energy crisis hasn’t gone away.

What if Trump declares victory, pulls U.S. carriers out of the region, and moves on from the conflict with Iran, leaving the Strait of Hormuz exactly as it is?

Even if the S&P 500, Nasdaq, and Dow Jones initially rally on the news, the optimism may not last unless Iran also agrees to reopen the vital energy trade route. In fact, global oil inventories are being drawn down at an extremely rapid pace, with some estimates pointing to losses of millions of barrels per day. If Gulf exports do not resume in the coming weeks, oil prices could eventually rise significantly.

As for alternative export routes, like those developed by Iraq and the UAE, not only do these projects take time to build, but there is also the risk that new infrastructure could itself become a target.

Does it make sense for the U.S. to step back from Iran without securing a reopening of the Strait of Hormuz?

Even though the country remains the world’s largest oil exporter, American consumers are still facing rising gasoline prices, just as the rest of the world is. Therefore, CPI rose 3.8% year over year in April, the highest reading in three years, and the May figures are unlikely to offer much relief either.

Against this backdrop, the Federal Reserve may be forced not just to keep monetary policy restrictive for longer, but potentially even consider further rate hikes. The continued strength of the labor market doesn’t help either, as it gives policymakers more room to focus on inflation rather than growth concerns.

Will the end of the conflict and the reopening of the Strait of Hormuz help immediately?

Most likely not. Even if the geopolitical crisis is resolved, physical oil prices probably wouldn’t drop straight back to pre-crisis levels. Shipping lanes would still need to be cleared of mines, damaged infrastructure repaired, and supply chains fully restored, and all of that takes time.

On top of that, some of the demand that was held back during the disruption would likely return to the market, which could actually keep prices supported in the short term.

Thus, even with excitement surrounding potential IPOs from companies like SpaceX (SPCX), OpenAI, and Anthropic, a closed Strait of Hormuz could eventually weigh on sentiment.