Iran War Closes Strait of Hormuz; Oil Surges, Risk-Off Hits Equities as Supply Shock Spreads

The escalating conflict between Iran and Israel has effectively shut down the Strait of Hormuz, the world's most critical oil chokepoint, disrupting 20% of global crude exports and forcing a fundamental repricing of inflationThe rate at which prices rise across an economy. and central bank policy across asset classes. The blockade is not a speculative scenario; shipping companies are routing tankers thousands of miles around the Cape of Good Hope, and Dow Chemical CEO Jim Fitterling stated his company is "hardly moving anything" through the strait with potential delays of up to 275 days.

Oil prices have responded decisively. Brent crude headed for a weekly gain, with energy importers facing sustained margin compression. Japan's producer prices jumped by the most since 2014, supporting the case for a BOJ rate hike despite previous dovish guidanceCompany-issued forecasts of future financial performance.. India raised petrol and diesel prices for the first time in four years, a move signaling supply stress filtering through emerging markets. ECB Governing Council member Yannis Stournaras warned the central bank may be forced to hike rates if oil maintains its elevated level, inverting the usual "lower oil, higher growth" trade.

Equity markets are fracturing along sector lines. AI and growth stocks faltered as inflationThe rate at which prices rise across an economy. expectations and real yields rose. The global stock rally driven by AI optimism stalled in Asia on Friday, with sentiment souring across assets as global yields climbed. Copper extended its retreat from record highs on accelerating inflation reducing the prospect of rate cuts. Treasury yields surged, and gold headed for a weekly decline despite its usual inflation hedge properties, a sign that risk-off sentiment is overwhelming safe-haven demand.

The geopolitical dispute remains unresolved, with China demanding "immediate" reopening of the Strait while US officials downplay intervention. Foreign buyers are snapping up nearly half of the crude released from the US Strategic Petroleum Reserve in recent weeks, a telltale sign that global supply tensions are real and sustained. Until military de-escalation credibly emerges, energy inflationThe rate at which prices rise across an economy. will remain a primary headwind for central banks and equity valuations.