There’s a new acronym doing the rounds in trading rooms. TACO – Trump Always Chickens Out — has now been joined by NACHO – Not A Chance Hormuz Opens.
The darkly comic progression says a lot about how sentiment has evolved since the outbreak of the US–Iran conflict in late February. What markets initially assumed would be short-lived is starting to look more structural. But as with so much in investing, the headline picture and the underlying reality depend very much on where you sit.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
What the oil market is actually telling us
When the Strait of Hormuz effectively closed in early March, oil prices almost doubled in a matter of weeks, from the low $60s to a peak of around $110 a barrel. The disruption was significant. Around 20 million barrels a day of crude oil and petroleum products normally move through the Strait, representing roughly a quarter of global seaborne oil trade.
And it’s not just crude. The Strait is also a critical route for refined fuels, liquefied natural gas (LNG), and key inputs to industrial processes, from petrochemicals to fertilisers. In the case of LNG alone, around a fifth of global trade typically passes through this corridor.
The response was swift. The US authorised one of the largest releases of emergency reserves in its history as part of a coordinated move by IEA nations.
As of this week, Brent has eased back to around $105 a barrel. More tellingly, the futures curve is pricing a steady decline from here. Market pricing implies oil at roughly:
around $90 per barrel by December 2026
low $80s through mid‑2027
high $70s by late 2027
Prices remain above pre-conflict levels, but significantly below current spot prices. For all the noise around disruption, market participants and speculators are still pricing in a shock that will prove temporary rather than permanent.
Adaptation is already underway
That expectation reflects a consistent feature of energy crises – they accelerate change. High prices incentivise new supply, encourage diversification, and bring forward investments that might otherwise have taken years.
For example, we heard this week that the UAE’s new crude pipeline bypassing the Strait is about 50% complete, after Crown Prince Sheikh Khaled Mohamed bin Zayed instructed the state-owned ADNOC to fast-track construction. The accelerated timeline follows UAE’s withdrawal from OPEC earlier this month.
Supply chains are adjusting, with oil, gas and downstream products being sourced from a wider range of regions, and prices are settling, albeit at higher levels. Airlines have signalled that while costs remain elevated, jet fuel availability is not the primary concern. Developed markets, in particular, can show a degree of resilience because they can pay higher prices, and source elsewhere.
That resilience isn’t evenly distributed.
A very different reality elsewhere
In many developing economies, the pain is felt much more acutely. When fuel prices rise, transport costs rise, and so does the cost of producing and distributing food and essential goods. For lower-income households, that is not a squeeze on disposable income, but on the essentials themselves.
Recent events in Kenya, where protests over fuel price increases turned violent, offer a reminder of how quickly these pressures can translate into real-world consequences.
While the direct impact on global equity markets is limited – reflecting the relatively small weighting of these economies in major indices – the human and economic consequences on the ground are significant, and in many cases worsening.
The political dimension
That divergence matters politically. Inflation has a consistent track record of shaping election outcomes, and the pressure on policymakers intensifies as price rises feed through into everyday costs.
With US midterms approaching, there’s a clear incentive to stabilise the situation. That political reality helps explain why markets continue to price in some form of resolution, even as uncertainty remains elevated.
Energy security, and the investment case
For investors, the more important shift is structural.
Energy security is increasingly sitting alongside cost as a defining consideration for both governments and businesses. Those that have diversified supply, invested in infrastructure, or built domestic capacity are proving more resilient.
That’s shaping capital allocation. Investment is being directed towards areas like energy infrastructure, storage and supply chain resilience, themes that were already emerging, but which recent events have accelerated.
There’s a further dimension. For much of the past decade, some long-term forecasts expected energy demand would gradually moderate, driven by efficiency gains and the transition to renewables. That remains part of the story, but it’s being complicated by rapid growth in artificial intelligence (AI), as data centres are hungry users of electricity.
For investors, that shifts the question from simply where prices are heading to who is best positioned for a more energy-intensive, and more security-focused, world.
The bigger picture
The futures curve still points to some resolution.
Supply chains are adjusting. Nimble management teams can gain competitive advantage through adapting their sources and processes. However, the effects of this shock, on inflation, on policy, and on capital allocation, will take time to fade.
The disruption is real, and its human and economic costs are unevenly distributed. But it’s also accelerating longer-term trends around resilience, infrastructure and energy demand. For investors willing to look beyond the immediate noise, those trends are becoming clearer by the day.