The Price of Complacency
In the spring of 1973, markets were still debating whether the Arab oil states would actually use the oil weapon. They did. Fifty-three years later, WTI crude has already surged 40% in a single month to $111 a barrel, and the Strait of Hormuz, through which roughly 20% of the world's seaborne oil transits daily, has not yet been physically disrupted. That gap between what has happened and what could happen is where the most dangerous mispricing in global markets currently lives.
On April 3rd, 2026, President Trump posted escalatory statements on Truth Social threatening the destruction of Iranian bridges and electric power plants, calling on what he termed the 'new regime leadership' in Tehran to act quickly. Simultaneously, the IDF reported striking over 3,500 targets in Lebanon, eliminating senior commanders and destroying weapons-transfer routes. Four distinct geopolitical escalation events were recorded within a six-hour window. This is not background noise. This is a regime-defining exogenous variable, and it is not yet fully priced into any major asset class.
What the Probability Distribution Actually Implies
Our assessment places the probability of a physical Hormuz closure or sustained disruption at 25-30% over the next 60-90 days. That figure demands respect. In options markets, a 25% probability on a binary event would command a substantial premium. In equity and credit markets, that same probability appears to be trading closer to 5-10%, evidenced by the S&P 500 holding near 6,558 and high-yield OAS sitting at a historically placid 3.28%.
The consequences of a Hormuz closure are not speculative. They are arithmetically derivable. Roughly 17-18 million barrels per day of crude and refined products pass through the strait. A credible multi-week disruption would remove supply equivalent to the combined exports of Saudi Arabia and the UAE from global markets in a matter of days. Our modelled range in that scenario is $140-165, with reaching $160-185. The passthrough to US , which has not yet captured the 40% oil of the past month, would push the April-May trajectory toward 4.5-6.0% on a year-over-year .