The reopening of the Strait of Hormuz signals that the most intense phase of the Middle Eastern energy shock has passed. The market is no longer focused on the tail risk of an extreme supply disruption and is instead repricing expectations for the resumption of shipping and supply chain repair. However, the reopening of the strait does not equate to the complete end of the shock.
Over the past few months, the global energy system has demonstrated unexpected resilience. It did not immediately descend into disorder due to the blockage of the Strait of Hormuz, nor did oil prices spiral out of control. During this period, however, significant divergence has emerged between different countries and across various commodity types.
Why was the global supply chain more resilient than expected during the blockade?
Why did oil prices not surge to extreme levels during the prolonged blockade of the Strait of Hormuz? Some predictions had anticipated prices exceeding $150 or even higher. Even a prominent figure like Donald Trump reportedly stated he "expected oil prices to rise to $200 or even $250 due to the war." However, in reality, prices did not skyrocket to $200 but were contained within a range around $100 per barrel.
The absence of an extreme price spike can be attributed to a buffer created by the release of national inventories and the use of alternative export routes. This buffer came from several sources: first, some oil-producing nations partially replaced seaborne exports with pipeline shipments. Second, some consuming nations used strategic petroleum reserve releases to cover short-term deficits. Third, some remaining production capacity was moderately increased. Fourth, increased U.S. exports helped fill part of the shipping gap. Fifth, short-term flows from other non-Hormuz sources were also adjusted.
This demonstrates the strong adaptability on the supply side of the crude oil market. Alternative exports via the Red Sea and inventory releases by the International Energy Agency provided a significant buffer against the impact of restricted Hormuz shipments. Despite the blockade affecting 15 million barrels per day of Hormuz shipping capacity, global crude oil supply only saw a net reduction of approximately 6.5 million barrels per day compared to pre-war levels. Adjustments in short-term flows from some non-Hormuz sources alleviated the degree of supply tightness.
For instance, before the conflict, Japan's reliance on Hormuz-shipped crude exceeded 90%. Recently, however, Japanese officials indicated that by July, the country expects to source 100% of its average monthly demand from alternative sources. Methods include increasing imports of U.S. oil by more than tenfold. Additionally, the intensity of the Hormuz blockade itself has been questioned. According to Vortexa estimates, in the first ten days of June, at least 1.8 million barrels per day of non-Iranian Gulf crude were shipped via the Strait of Hormuz, a roughly 50% increase from May's 1.2 million barrels per day. As more tankers are identified by satellite, these figures may be revised upward.
On the other hand, the demand side of the crude oil market also helped absorb the supply shock by suppressing consumption. In many downstream petrochemical industries, demand curves shifted leftward, meaning that after supply shortages pushed prices higher, demand for downstream consumer goods also began to contract.
For example, a Japanese snack company announced it would temporarily change the packaging of some potato chips and snacks from color to black and white to save on raw materials and maintain stable product supply. In India, the textile industry delayed orders, reduced demand, and implemented phased production cuts due to rising polyester costs. The textile cluster in Surat saw loom shutdowns and reduced output as costs for PTA, MEG, and other polyester raw materials increased.
Energy demand in the service sector also declined due to rising oil prices. For instance, China's gasoline and diesel demand fell by 16% and 13% year-on-year in April and May, respectively. This year's May Day holiday also saw a rare negative growth in civil aviation passenger traffic, breaking the post-pandemic trend of continuous recovery in airline load factors and travel demand.
Since the second quarter of this year, rising oil and jet fuel prices have increased cost pressures on airlines. Domestic route fuel surcharges in China have been raised multiple times, and ticket prices on some routes have increased, suppressing price-sensitive travel demand.
The fact that an extreme supply shock at Hormuz did not lead to extreme oil prices further indicates that the crude oil market is in a long-term state of oversupply. According to the International Energy Agency's June Oil Market Report, the global oil market could shift back into surplus by the end of 2026. By 2027, supply could rebound sharply to 110.3 million barrels per day, while demand is projected at only 105.3 million barrels per day, creating a significant supply surplus.
The Strait may reopen, but how long will it take for the scars to heal?
On June 19th, the U.S. and Iran signed a provisional memorandum of understanding regarding the reopening of the Strait of Hormuz. The preliminary arrangements include a 60-day toll-free navigation period. The core of the agreement is to extend the ceasefire, reopen the Strait of Hormuz, and defer more difficult issues like nuclear matters, sanctions relief, and waterway management to subsequent 60-day negotiations.
Agreement-level openness means the waterway is politically and legally declared passable. Consequently, the geopolitical risk premium in the crude oil market rapidly compressed, with Brent spot prices briefly returning to levels seen just before the U.S.-Iran conflict on February 28th.
However, actual navigation has not fully returned to normal. Normal shipping remains affected by factors such as sea mines, risks on alternative routes, and GPS interference. Restoring actual navigation also requires resolving details like security guarantees, vessel reporting, and traffic management rules.
The Iranian side has stated that after the 60-day toll-free period, Iran may charge fees for security, navigation, environmental protection, and insurance services. Furthermore, Israel's core demands were not included in the U.S.-Iran memorandum, meaning the Strait of Hormuz faces the threat of navigation being suspended at any time due to potential Israeli strikes on Syria. Therefore, the agreement primarily reduces tail risks.
The restoration of trust in the shipping lane is slower than the physical clearance of obstacles. Shipping companies will not immediately resume their original routes just because risks have eased. They need to see a sustained decline in risks, controllable insurance costs, stable passage rules, and no risk of renewed attacks or ship seizures.
During this period, if supply chain credibility continues to be damaged, it will impact long-term crude oil supply and demand. The experience in the Red Sea and the Bab el-Mandeb Strait has already highlighted the importance of passage credibility. After Houthi attacks on Western commercial vessels in late 2023, container ship traffic through the Gulf of Aden and Bab el-Mandeb remained low for an extended period. By early 2025, traffic on some routes was only about 10% of the normal level seen in late 2023. As of May 2026, traffic was still approximately 80% lower than the 2023 average.
The same applies to the Strait of Hormuz. Even if Iran completes mine clearance within 30 days and officially declares the waterway passable, it does not mean large tankers and mainstream shipping companies will return immediately. Shipping firms will instinctively demand higher risk compensation, insurers will continue to maintain relatively high premium rates, and cargo owners will opt for detours or wait.
Key factors to watch regarding future Strait passage include: whether Iran will impose fees, inspections, or interventions on ships after the 60-day period; whether war risk insurance premiums can decline; whether cargo owners are willing to bear the associated risks; whether large multinational shipping companies are willing to reschedule routes; and whether passage conditions are sufficiently stable and predictable.
Moreover, the resumption of shipping does not equate to the resumption of production. Many storage tanks were already filled to capacity due to previous export disruptions. After storage was full, oil wells were shut in. Restarting these wells takes time. If the shutdown was short-term, recovery might take a few weeks. However, recovery is slower for longer shutdowns or for wells with complex geological conditions, especially those requiring water or gas injection to maintain pressure, older fields in decline, or fields where production facilities or infrastructure were damaged.
Restoring these fields requires not just reopening wells but also coordination with oilfield services, labor, contractors, equipment, pipelines, and ports. Partial recovery might take weeks; in complex cases, it could take six months or more.
Additionally, some oil-producing nations have begun strategically reducing their reliance on the single chokepoint of Hormuz. For example, the United Arab Emirates has explicitly set a "zero-strait dependency" goal. It plans to advance infrastructure development along the Gulf of Oman coast, including expanding eastern ports like Diba, Fujairah, and Khor Fakkan, and building at least one new port on the same coastline.
In summary, even with an agreement in place, restoring shipping lanes, lowering insurance premiums, and restarting oil field production all require time. The likely future state for oil prices is one where tail risks diminish and price volatility subsides somewhat, but the price center remains above pre-war levels, with a slow downward slope.
Why did commodities and currencies diverge despite facing a common shock?
From the U.S.-Iran conflict to the reopening of Hormuz, global commodity prices experienced significant volatility. Initially, rising costs for crude oil, transportation, inventory security, and supply chain risks pushed up the cost base for petrochemicals. However, subsequent price trends for different commodities showed clear divergence: some continued to rise, some fell rapidly, and others were more influenced by their own supply and demand dynamics.
The initial phase was about pricing the beta of the energy and petrochemical complex; the subsequent phase has been about pricing the alpha of AI-related investments. In the early stages after the outbreak of the U.S.-Iran war, energy-related commodities rose broadly, including aromatics, olefins, polyesters, rubber, polyurethanes, inorganic chemicals, and some fertilizer segments.
However, by May, as cost concerns receded, commodity prices began to diverge significantly. Products with higher AI relevance saw catch-up gains supported by industry narratives, such as high-purity helium, electronic specialty gases, copper, tin, silver, lithium, electrolytes, PCB resins, copper-clad laminates, and liquid cooling materials.
Other chemical products (like aromatics, olefins, polyesters, fertilizers, etc.), despite strong performance in March, saw prices retreat again in May. Therefore, the geopolitical shock only influenced the short-term price trajectory of commodities. What determined their K-shaped divergence was their exposure to AI and their scarcity.
The geopolitical conflict also impacted different countries to varying degrees, reflected in their exchange rates. Among major Asian economies, only the Chinese Renminbi has appreciated against the U.S. dollar since the U.S.-Iran war began. China's manufacturing sector possesses four comparative advantages: low dependence on the Middle East, high energy self-sufficiency, substitutability via coal-based chemicals, and high penetration of new energy vehicles.
Amid the energy shock, China has been able to export new energy technologies and products to other Asian economies while also absorbing some energy-sensitive segments of industrial chains from Japan and South Korea, further expanding the completeness of its manufacturing supply chain.
India and some Southeast Asian economies are facing dual pressures from the energy shock and low value-added positions in supply chains. India is highly dependent on imported crude oil and LPG. Turbulence in the Gulf region quickly increases its demand for U.S. dollars, widens its trade deficit, and transmits shocks to its traditional manufacturing sector. The shutdown of tile factories in Gujarat due to insufficient propane supply illustrates that the impact is not confined to financial markets but has entered real production.
Furthermore, India's traditional strengths in software outsourcing and cost-center service outsourcing face pressure from potential substitution by AI agents. Primary programming, customer service, data processing, back-office operations, and standardized knowledge work are most susceptible to restructuring. This year, India's NIFTY IT index has fallen to a three-year low.
While some Southeast Asian nations participate in global manufacturing division of labor, most are positioned in mid-to-downstream assembly and processing. After prices for upstream fuels, chemical raw materials, and electronic components rise, export values may increase, but profit margins and trade surpluses can be squeezed.
Japan and South Korea can share in the benefits of the AI hardware cycle, but their high external energy dependence weakens support for their currencies. Japan benefits from semiconductor equipment and material exports, and South Korea from rising memory chip prices. However, both countries rely heavily on energy imports from the Middle East. Rising oil and gas prices worsen their terms of trade and squeeze profits in energy-sensitive industries like automobiles, chemicals, steel, and electronics.
Particularly in Japan, where internal combustion engine and hybrid vehicles still hold a significant share in the auto industry, rising oil prices negatively impact export competitiveness and end-demand. South Korea's issue lies in the fact that the AI industry boom is more reflected in stock market and corporate profit gains, which have not fully translated into foreign exchange inflows. Instead, net foreign capital outflows and high financial market volatility have weighed on the Korean Won.
Southeast Asian countries with resource endowments, like Indonesia and Malaysia, have not seen significant currency appreciation. The key factors here are fiscal discipline and policy credibility. Indonesia faces pressure from fuel subsidies, fiscal deficits, and the central bank's efforts to stabilize the currency. Malaysia, despite export revenues from LNG, petroleum products, and palm oil, also sees the benefits of improved current accounts potentially eroded by domestic energy subsidies and rising electricity demand from AI data centers.
Whether resource export revenues translate into currency support depends on fiscal discipline, the burden of subsidies, and confidence in capital flows. The K-shaped divergence in Asian exchange rates essentially reflects the market pricing the comprehensive resilience of different economies when facing the dual challenges of an energy shock and AI-driven industrial restructuring.
The Renminbi benefits from manufacturing completeness and energy autonomy. The currencies of India and some Southeast Asian nations are constrained by energy imports and low value-added supply chains. Japan and South Korea, despite enjoying AI hardware benefits, see those offset by energy dependence and capital outflows. The fate of resource-based economies depends on whether high oil price revenues can cover fiscal subsidy costs and sustain policy credibility.
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