Oil nears $90 as Hormuz hopes fade: Why the shock may last months

Oil prices have surged closer to the $90 mark, despite lingering hopes that the Strait of Hormuz could reopen. This surge reflects the complex relationship between diplomatic developments and the supply chain disruptions caused by the ongoing conflict between Iran and the United States. UBS reports that while supply-chain stress has eased somewhat since the conflict's onset, it has not yet returned to normal levels.

The Strait of Hormuz, a critical energy chokepoint, is more than just an oil pipeline; its disruption has far-reaching implications for global trade and supply chains. Shipping costs have risen due to fuel and insurance expenses, and container freight rates have increased sharply. Even if the waterway were to reopen quickly, businesses would still need to address issues like repositioning ships, clearing backlogs, and renegotiating contracts.

The economic impact of the Hormuz disruption may persist long after the physical bottleneck is resolved, creating a "lagged supply shock." As Iran and Oman negotiate a potential deal, the uncertainty surrounding the situation remains high, with the United States resisting any agreement that might leave Iran in control of the waterway.

Therefore, the rise in oil prices above $90 is seen less as a bet on the Strait remaining closed permanently and more as a warning that normalization could take much longer than initially anticipated.