The effective blockage of the Strait of Hormuz is profoundly reshaping the global energy pricing framework. However, the market's widespread bet on a "reopening in June" likely underestimates the complexity of the crisis.
Helima Croft, Global Head of Commodity Strategy at Royal Bank of Canada (RBC), is "highly skeptical" that the Strait will reopen in June or that shipping will return to pre-conflict levels in the Middle East anytime soon. She describes the market's optimism as "magical thinking," based on a fragile assumption: that sufficient economic pain will automatically trigger a policy lever to allow tankers to transit the Strait again.
In contrast, Goldman Sachs, using a baseline of "reopening starting soon and completing by end-June," predicts Brent crude will fall back to $90 per barrel by year-end. Croft strongly disagrees, arguing the market severely underestimates the blockade's persistence and impact.
She warns that if the current production halt of approximately 12.5 million barrels per day continues, cumulative losses will exceed 1 billion barrels by month's end; if extended into June, losses could approach 1.5 billion barrels. As the summer demand peak arrives and inventories are significantly drawn down, oil prices are "highly likely to surpass the highs seen during the Russia-Ukraine conflict and approach the 2008 peak." Ultimately, rebalancing would only be achieved through demand destruction—a scenario that would likely push bond yields significantly higher and risk a sharp downturn in stock markets.
The path to reopening is narrow, constrained both diplomatically and militarily. The prevailing "June reopening" narrative in the market primarily bets on two paths: a negotiated settlement or unilateral U.S. military intervention. However, Helima Croft views both scenarios as unlikely.
Militarily, the U.S. could theoretically deploy over 100,000 ground troops to forcibly open the Strait, but the White House has no appetite for a large-scale, protracted war in the Middle East, which would also contradict "America First" campaign promises. Croft assesses that any limited action would fail to achieve the goal of forcing the Strait open, while a full-scale invasion is not under consideration.
Diplomatically, reaching a near-term agreement is equally challenging. Issues surrounding Iran's uranium enrichment capabilities and stockpiles remain unresolved. Crucially, even if nuclear issues were settled, Iran is unlikely to easily relinquish control of the Strait. The strategic deterrent value of this waterway now rivals its nuclear program as a core bargaining chip, making voluntary surrender nearly impossible.
The "dual blockade" strategy has failed to significantly pressure Tehran, with regime resilience exceeding expectations. The White House initially hoped that imposing sufficient economic pressure through a "dual blockade" would force Iran to loosen its grip on the Strait. Early predictions even suggested Iran's storage tanks would fill within 13 days, compelling a quick compromise.
In reality, Iran has a buffer of several weeks to months in storage capacity, and the leadership has shown considerable resilience. The authorities maintain firm control over security forces, with no significant internal fractures apparent.
Therefore, Croft judges this strategy is unlikely to genuinely alter Tehran's stance before June. While the market will continue to watch for potential cracks in regime stability due to fiscal pressure, for now, the "dual blockade" is insufficient to sway Iran's decisions.
Even if reopened, traffic recovery will be prolonged. Even if the Strait of Hormuz reopens in some form, as long as Iran retains operational control, actual traffic volumes will remain far below pre-war levels. Croft notes that as long as Iran remains under sanctions, Western companies will be wary of transit fees levied by Iran, and the ongoing risk of maritime attacks will continue to deter shippers from returning.
Several leading shipping experts have stated that a reopening scenario under Iranian control would lead to constrained throughput. A clear military defeat for Iran and unrestricted transit channels are the true prerequisites for the Strait's full recovery.
Using the Red Sea situation as a reference: Despite a U.S.-Houthi ceasefire agreement a year ago, Red Sea shipping volumes remain about 56% below pre-conflict levels, with several major shipping lines continuing to reroute due to security concerns in the Bab el-Mandeb Strait.
Croft believes that even if the Strait of Hormuz achieves a form of normalization, traffic might only reach the current constrained levels seen in the Red Sea. Reaching even that level would take considerable time—weeks just for vessel scheduling and logistics post-reopening, not including time for shippers' risk assessments.
Oil prices may approach 2008 peaks, pressuring both bond and stock markets. Croft argues that with the full onset of the summer demand season and significant inventory drawdowns, oil prices are highly likely to surpass the highs of the Russia-Ukraine conflict and approach the historical 2008 peak. In this scenario, demand destruction would ultimately become the market's rebalancing mechanism—only prices high enough to suppress consumption would close the supply-demand gap.
However, before significant demand destruction occurs, bond yields are likely to rise sharply first. Global long-term rates are already showing signs of breaking out, with rekindled inflation pressures and rapidly expanding leverage creating an increasingly tense macro environment. Crucially, stock markets have become highly sensitive again to bond market signals. Against this backdrop, a dual surge in oil prices and interest rates could well conclude with a sharp, not mild, stock market correction.
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