Iran Asserts 'Full Supervision' of Strait of Hormuz, Threatens Closure

What happened

Iran's Army Commander-in-Chief, Amir Hatami, stated that the Strait of Hormuz is under the "full supervision" of the army and the Islamic Revolutionary Guard Corps (IRGC). Hatami declared that the strait "will remain closed until the enemy respects the rights of the Iranian people." He also claimed that, to date, "not a single enemy vessel has dared to enter the Sea of Oman, except for three vessels that came and were fired upon by us," indicating decisive action that resulted in "very, very limited" traffic in the region.

Why it matters

The Strait of Hormuz is one of the world's most critical maritime routes for oil transportation, through which a significant portion of the global supply passes. Iran's statement about full supervision and the threat of closure, even if conditional, introduces substantial geopolitical risk. Any disruption or perceived heightened risk in the Strait of Hormuz has the potential to directly impact oil flow and, consequently, its prices. Iranian rhetoric signals a more assertive and potentially confrontational stance in the region, which could destabilize the global energy market and international relations.

Market impact

• Interest rates and bonds: In a scenario of increased geopolitical risk, especially with potential impact on oil, investors tend to seek assets considered safer. This could lead to a fall in Treasury yields (and other sovereign bonds of developed economies) as demand for these assets increases.
• Dollar and exchange rates: The US dollar tends to strengthen in times of global risk aversion, acting as a safe haven. Emerging market currencies, including the Brazilian real, may depreciate against the dollar due to capital flight and the perception of greater global risk.
• Equities: Global stock markets tend to react negatively to increases in geopolitical risk, especially those that threaten energy supply or economic stability. Energy-dependent sectors may be particularly affected, either positively (oil producers) or negatively (companies with high energy costs). Uncertainty can lead to a generalized correction.
• Commodities: Oil is the most directly impacted asset. The threat of closure or disruption in the Strait of Hormuz tends to push oil prices (Brent and WTI) higher due to supply concerns. Other commodities may have mixed reactions, but the main focus will be on the energy market.
• Brazil: Brazil, as an oil producer, may see its sector companies (such as Petrobras) benefit from higher prices. However, increased global risk and dollar appreciation could pressure the real and the Ibovespa, especially if risk aversion is widespread and impacts investment flows to emerging markets.

What to watch

It will be crucial to monitor any further developments in Iranian statements or military actions in the Strait of Hormuz region. The reaction of other global and regional powers to these statements will also be important. Furthermore, the evolution of global oil inventories and demand, along with OPEC+ supply, will provide context for the sustainability of any oil price movements.

Scenarios

Base Scenario: Iranian rhetoric remains elevated but without concrete actions to close the strait, maintaining an oil risk premium but without significant disruptions. Markets remain cautious. Risk Scenario: Iran takes steps to restrict traffic in the Strait of Hormuz, leading to a real disruption in oil supply and a geopolitical escalation, with a strong upward impact on oil prices and generalized risk aversion in global markets.

Original source: Middle East Eye. For information only, not investment advice.