The stakes are high in the Strait of Hormuz
14 JUL, 2026
By Anthony Willis, Senior Economist at Columbia Threadneedle Investments
Uncertainty surrounds the Strait of Hormuz, with Iran claiming it is closed while the United States insists it remains open to international maritime traffic. Although the 30-day ceasefire had allowed for an increase in shipping flows, maritime traffic through the strait has begun to decline again. Oil prices have risen, climbing roughly 10% over the past week, fueling fears of renewed inflationary pressure. Markets are now pricing in rate hikes from the US Federal Reserve, the Bank of England, and the European Central Bank by the end of October, reflecting shifting inflation expectations. Equity markets remain relatively calm, but a prolonged disruption or fresh escalation could bring further risks tied to supply shortages and rising prices.
As has been the case for several months now, we find ourselves asking whether the Strait of Hormuz is open or closed, and what that actually means. Over the weekend we once again saw US attacks on Iranian installations along the coast, and likewise saw Iran strike US assets in the region. On five separate occasions, the US struck Iran following allegations that Iranian missiles had hit ships in international waters. So where do things stand?
Over the weekend, the Iranians declared that the Strait of Hormuz was closed again. The US, by contrast, maintained that the waterway remains open to free transit for international shipping. For now, though, the decision to leave the Gulf and cross the Strait of Hormuz comes down to each party's individual risk appetite. Looking back at the memorandum of understanding signed in the middle of last month, it envisioned 30 days for maritime traffic to return to normal – a deadline that would expire at the end of this week. We are, however, currently far from that normality. In recent days we've seen the number of vessels transiting the strait fall again. In total, around 570 ships have left the Persian Gulf since the ceasefire extension agreed in mid-June, and three-quarters of them passed through the strait to do so.
This represents a surplus of oil set to enter global markets. Yet what we saw this morning is that the average oil price has climbed again – up roughly 10% over the past week and about 12% from its lows. We're also seeing market movement in interest rate expectations, which in turn is affecting bonds. Equity market reactions have so far been relatively muted, which may reflect a view that this is just another setback on the road to peace rather than a return to full-scale war. Still, there may be risks we're underestimating, with the possibility that the situation drags on and that the disruption to the Strait of Hormuz continues for even longer periods.
On interest rate expectations, looking at the eurozone, the Bank of England, and the Fed, markets are now fully pricing in a rate hike from all three central banks by the end of October. This implies that inflation expectations will keep shifting as oil prices continue to rise.
There remains, however, considerable room for maneuver. President Trump again stated over the weekend that a deal is being reached and that further talks will take place in the coming days. Iran, though, would push back against this, stating it intends to keep exercising its authority over the Strait of Hormuz – and this does appear to be the real point of friction in the near term.
Setting aside the more complex issues tied to nuclear negotiations, the Strait of Hormuz question remains central both to the economic outlook for financial markets and, of course, to the future path of inflation. Should these low-level attacks from both sides continue and intensify, to the point that a ceasefire – one President Trump has already deemed obsolete – is genuinely broken by both parties, then we would once again be looking at a scenario of rising prices and supply shortages. We are not there yet, but we need to stay alert to the persistent risks.
In conclusion, this isn't a particularly upbeat update, but financial markets have become quite skilled at looking past many of these risks, so we shouldn't take too much risk off the table. We do need to stay aware, though, that we could see materially greater risk if this conflict were to intensify again.
