Hormuz: Why Markets Are Shrugging Off The Oil Shock

by Lance Roberts of Real Investment Advice, 4/27/26

As of this writing, the Strait of Hormuz remains effectively closed since February 28. Roughly 20% of the world’s seaborne oil stopped moving through the chokepoint. The International Energy Agency described the event as “the largest supply disruption in the history of the global oil market.” Gulf producers shut in nearly 9 million barrels a day of production. U.S. gasoline at the pump jumped from $2.98 to over $4.00.

Every historical template for this kind of shock, 1973, 1979, 1990, pointed to a stagflationary body blow that breaks markets. After 30 years of watching cycles play out, I’ve learned that when the tape refuses to confirm a catastrophe narrative, it’s usually seeing something the headlines miss. That’s exactly what is happening with the Strait of Hormuz. Brent peaked near $120 and now sits around $96, well below the $132 the Dallas Fed modeled for a closure lasting three quarters. The S&P 500 is grinding higher. China, which takes roughly a third of its crude through the waterway, hasn’t buckled.

So the question isn’t why the catastrophists were wrong. It’s what they missed, and where the real risks now sit.

Why The Headline Was Worse Than The Reality

The “20% of global oil closed” framing was always misleading. In reality, the reduction in impact came primarily from four forces, and the primary source documents each.

First, Middle Eastern producers rerouted crude around the strait. Rystad Energy’s Tom Liles estimates that 5 to 6 million barrels a day can flow through Saudi and UAE pipelines terminating at the Red Sea and the Gulf of Oman. That’s roughly a third of the region’s normal seaborne exports, redirected within weeks. By late March, Iran had also granted transit rights to tankers flagged by China, Russia, India, Iraq, and Pakistan. In other words, Iran’s move to close the Strait of Hormuz served as a rationing mechanism rather than a closure.

Secondly, the strategic reserves finally worked as designed. The IEA coordinated a 400-million-barrel release, the largest in its history. The U.S. SPR alone is putting 1.4 million barrels a day on the water. Bernstein’s research team captured the ceiling on that policy response in a single line:

quote

That’s correct, and that’s also enough. Buying time was the entire job while pipeline workarounds scaled and demand destruction started to bite.

Third, China came into the crisis loaded. EIA data show Chinese commercial oil inventories near 1 billion barrels heading into February 2026, plus another 360 million barrels of state reserve. That’s several months of imports on hand. Combined with Iran’s selective transit allowance, Beijing was never going to let this break its economy.

chart

Finally, and most importantly, the United States has dramatically changed structurally since the 1970s. Domestic crude production exceeds 13 million barrels a day, which insulates the US against foreign shocks, as we saw during the Arab Embargo. Furthermore, LNG exports averaged nearly 18 billion cubic feet per day in March, according to the EIA’s April Short-Term Energy Outlook. Less than 10% of the U.S. crude supply transits the Strait of Hormuz. In a global supply shock, America is the marginal supplier, not the marginal victim.

Notably, the Dallas Fed’s worst-case scenario for a closure confines the damage to a single quarter, estimating a 2.9 percentage point annualized hit to global real GDP. We’re tracking closer to the base case, which assumed rerouting, reserves, and demand response would absorb most of the damage. So far, they have.

brent crude

Read more: Why Panic is a Costly Mistake