Geopolitical tensions surrounding the Strait of Hormuz have intensified once more, with the core disputes over control of the strategic waterway between the US and Iran remaining unresolved despite the June Islamabad Memorandum of Understanding. The memorandum had briefly facilitated a restoration of navigation through the strait. However, as the United States promotes a southern alternative route and Iran strengthens its de facto control over the primary channel, renewed friction between the two nations has once again disrupted maritime traffic. Regarding asset performance, crude oil is anticipated to strengthen in the near term but remain subject to significant volatility thereafter. Global equities and other risk assets are still expected to chart their own course. Gold is likely to continue behaving like a risk asset in the short term, facing downward pressure. The core disagreements between the US and Iran are not expected to be genuinely resolved soon, meaning navigation issues in the Strait of Hormuz will continue to unsettle global asset prices across the board.
Key Drivers of the Renewed Conflict
US-Iranian tensions have escalated again, re-establishing the Strait of Hormuz as a critical variable in global asset pricing. On July 12th, Iran announced the closure of the strait, prompting the US to expand its military strikes against Iran. Iran, in turn, launched retaliatory actions against US military bases in the Middle East. This represents the most severe deterioration in the situation since the signing of the Islamabad Memorandum of Understanding on June 17th, signaling that the previously anticipated period of de-escalation has collapsed. Consequently, risks to global energy transportation and broader geopolitical stability have risen once more.
Brief Recovery Followed by Rapid Deterioration
The Memorandum of Understanding initially led to a notable, though short-lived, improvement in strait traffic. Under its terms, Iran committed to mine-clearing operations and facilitating the resumption of commercial shipping. Traffic through the Strait of Hormuz subsequently recovered quickly. However, following the resurgence of US-Iran conflict in late June, daily transit volumes have persistently declined, falling from a peak of around 70 vessels per day to just over a dozen by mid-July. Concurrently, vessel routes have noticeably concentrated towards the northern channel controlled by Iran.
Core Disputes Remain Unresolved
The fundamental conflict between the US and Iran remains unaddressed, making a near-term restoration of normal traffic unlikely. As the US attempted to circumvent the MOU by establishing a southern route, Iran began using force to restrict navigation in that area. The clash over control of the strait led to the rapid deterioration of the situation post-late June. A genuine easing of tensions appears difficult to achieve in the short term. Neither electoral considerations for the US administration nor economic pressures within Iran are currently sufficient to compel either side to make substantive concessions. Furthermore, Israel retains the potential to further escalate the situation. Therefore, until breakthroughs are made on control of the Strait of Hormuz and the regional security issues prioritized by Iran, any temporary ceasefires or negotiated outcomes are likely to be merely provisional.
Implications for Major Asset Classes
Major asset classes are expected to continue experiencing volatility. The obstruction of the strait signifies that supply risks for crude oil persist, suggesting room for upward movement in the near-term price benchmark. Until the US-Iran conflict sees genuine de-escalation, the oil market is likely to remain choppy. Risk assets tend to be less sensitive to geopolitical conflicts; US and global equity assets are still primarily driven by the underlying dynamics of the AI industry. Gold continues to exhibit characteristics of a "risk asset," facing short-term suppression due to the strait's navigational difficulties. Overall, until the core US-Iran conflict truly moderates, the Strait of Hormuz will remain a significant variable influencing global asset allocation decisions.
Recent Asset Performance Snapshot
During the recent period (June 27, 2026, to July 10, 2026), performance across major asset classes was mixed. Global equity markets showed divergence, with US stocks rebounding while Chinese A-shares and Japanese equities faced pressure. Hong Kong stocks staged a significant rally. Government bond yields rose broadly worldwide. The US Dollar Index weakened slightly, while the offshore Chinese yuan depreciated modestly. Crude oil rebounded due to renewed conflict in the Middle East, gold edged higher, and base metals saw mixed performance.
Key price changes for the period were as follows: The Nasdaq Composite rose 3.89%, the S&P 500 gained 3.01%, and Europe's STOXX 600 increased 0.82%. Japan's Nikkei 225 fell 1.16%, South Korea's Kospi dropped 11.12%, China's Shanghai Composite Index declined 0.77%, and the CSI All Share Index fell 2.69%. Hong Kong's Hang Seng Index surged 6.63%, and the Hang Seng Tech Index rose approximately 5.72%. The yield on the 10-year US Treasury note increased by 18 basis points, while the 10-year German Bund yield rose by 22 basis points. The US Dollar Index appreciated 0.39%, while the offshore USD/CNY rate depreciated 0.33%. WTI crude oil advanced 3.15%, London spot gold increased 0.67%, LME copper rose 0.91%, the Nanhua Industrial Products Index gained 1.11%, and the wholesale pork price jumped 8.22%.
Key Risk Factors
Potential risks include geopolitical tensions exceeding expectations, US inflation surpassing forecasts, global economic growth falling short of projections, and monetary policy actions by the Federal Reserve and other major central banks diverging from market expectations.
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