The Hormuz crisis continues to strain supply chains, even as hopes of reopening the key waterway grow.
Oil markets are sending mixed signals, with Brent crude hovering near $90 a barrel even as investors continue to anticipate a potential reopening of the Strait of Hormuz.
The uncertainty highlights a major challenge for the global economy. While a diplomatic agreement could eventually restore shipping through the world’s most critical energy chokepoint, reopening the waterway would not immediately repair supply chains disrupted by months of turmoil, according to a UBS report.
Brent briefly reached $90 on Tuesday and was trading at around $88.91 at 7:51 a.m. on Wednesday (August 12) as hopes for a swift US-Iran agreement weakened.
Iran has said a deal involving Oman is nearing completion, but has cautioned that reaching an agreement would not necessarily mean an immediate reopening of the Strait of Hormuz.
On Tuesday, Iranian Foreign Minister Abbas Araghchi met Pakistan’s Interior Minister Mohsin Naqvi in Tehran as Islamabad intensifies its mediation efforts to help end the ongoing conflict between Iran and the United States. Iran’s official IRNA news agency said the two sides discussed important diplomatic and bilateral matters, but did not provide further details.
Tehran continues to push for changes to US policy, while Washington has rejected any arrangement that could effectively leave Iran in control of the Strait of Hormuz.
Oil Rises Despite Hopes of a Hormuz Reopening
Typically, the prospect of reopening the Strait of Hormuz would put downward pressure on oil prices.
Brent crude had dropped below $80 a barrel earlier this month as investors anticipated a potential Iran-Oman agreement. However, prices have since risen as hopes for a swift diplomatic breakthrough have weakened.
The latest move above $90 is not necessarily a sign that markets expect Hormuz to remain closed indefinitely. Instead, it suggests growing concern that restoring normal shipping operations could take far longer than initially anticipated.
‘Supply Chain Stress’
UBS has revived its global supply-chain stress analysis amid the ongoing Middle East conflict, building on a similar measure it used during the COVID-19 pandemic.
Recent UBS research shows that global supply-chain stress rose sharply during the early months of the conflict before easing from its peak. However, the decline does not mean supply chains have returned to normal. Instead, it indicates that the pace of disruption has slowed.
Other indicators point to a similar trend. The New York Fed’s Global Supply Chain Pressure Index, which combines transportation and manufacturing data, also tracks the continuing strain on global supply networks.
Hormuz Disruption
The Strait of Hormuz is more than a crucial route for oil shipments. The UN Conference on Trade and Development (UNCTAD) has warned that disruptions could have wider consequences for maritime transport and global supply chains.
Shipping companies have faced higher fuel and insurance costs while rerouting vessels around affected areas. Container freight rates have also climbed sharply, while bunker fuel costs have increased significantly.
Together, these disruptions can create what economists call a “lagged supply shock.” Even after the physical bottleneck is cleared, companies still need to:
- Reposition ships and containers
- Restore disrupted shipping schedules
- Rebuild depleted inventories
- Clear backlogs at ports
- Renegotiate freight and insurance arrangements
- Absorb higher transportation and fuel costs
Inventory
One of the biggest challenges could be rebuilding inventories. During a prolonged disruption, companies can rely on goods already held in warehouses, storage facilities and strategic reserves.
However, once those stockpiles are depleted, businesses must replenish them. This can create a second wave of demand for shipping and commodities just as transportation networks are beginning to recover.
Reopening the Strait of Hormuz does not mean an immediate return to normal.
Oil Is Only Part of the Shock
Energy is the most visible part of the disruption. The Strait of Hormuz normally handles roughly one-fifth of global oil consumption as well as a significant share of global LNG shipments, making any disruption especially significant for energy markets.
But the impact extends far beyond oil and gas. Higher energy prices raise transportation, manufacturing and production costs across the economy, meaning what starts as a temporary energy shock can eventually turn into a broader inflation problem.
What Markets Are Watching
Markets remain caught between diplomatic optimism and the realities on the ground.
Iran and Oman have moved closer to an agreement, but Tehran has made clear that the Strait of Hormuz will not simply reopen without additional conditions being met.
Meanwhile, Washington’s position remains difficult to reconcile with Tehran’s demands, leaving the outlook uncertain. Even if an agreement is reached, however, it would not immediately undo the disruption already caused.
The Strait of Hormuz can reopen in a day. Global supply chains cannot.
That is the significance of the UBS supply-chain stress indicator: it highlights the broader economic aftershocks that oil prices alone may fail to capture.
If traffic through the Strait of Hormuz returns to normal, energy markets could recover relatively quickly. However, the broader economic fallout may take much longer to unwind, with freight networks, inventories, insurance and manufacturing operations potentially requiring weeks or months to fully recover.
