EXCHANGE --- Markets: Wave of Pain Is Likely Headed Our Way Over the Hormuz Blockade

“Prices on our screens might be making us complacent about a looming economic drag. The Iran conflict's effects will get a lot uglier.

 

There's widespread faith that, while not perfect, the stock market is good at seeing around corners. For example, it often swoons months before economists predict recessions and then rallies before they give the all-clear. Millions of people putting their savings at risk distill available information pretty well.

 

But the hit to global supplies of oil, gas, fertilizer, helium, aluminum and other commodities from the Strait of Hormuz blockade is the sort of thing the market, and most Wall Street professionals, are bad at processing. This wouldn't be the first time a bubbling threat that will be obvious in hindsight was underestimated.

 

We know now that by late February 2020, Covid-19 was spreading at a speed that quarantines could no longer control. Investment strategists played armchair epidemiologist for weeks, dutifully updating case counts and laying out scenarios.

 

The whole world shutting down wasn't their base case. Stocks hit a record on Feb. 19, and the gravity of the emergency didn't resonate with many Americans until weeks later.

 

The main exception to Wall Street's relaxed message about Hormuz is from energy specialists.

 

"I've been surprised by how the (stock) market is willing to look through the fact that the strait continues to remain shut," said Josh Martin, head of securities and equity capital markets at Pickering Energy Partners, on a company podcast.

 

Americans are concerned about pump prices but, with no physical shortages, a billion missing barrels seems as abstract as 10,000 pneumonia cases in far-off Wuhan.

 

Even with a deal, stories will soon start to roll in about travel disruptions and factory shutdowns in Asia and then in Europe.

 

In the best case, it could take six months for markets like jet fuel and petrochemicals to normalize. Agriculture will feel the pinch for longer, and liquefied-natural gas will be crimped for years because of damaged infrastructure in major producer Qatar.

 

The Covid comparison isn't perfect: High prices are denting demand already, and this isn't as big or sudden of a crisis as the pandemic. But strategic-reserve releases, supplies already at sea and, until recently, Iran's own substantial shipments, have dulled the blow and made it seem less-serious to ordinary consumers.

 

The damage is cumulative, though. One reason energy-futures don't fully reflect this is that any glimmer of hope blows up bullish derivatives positions. Two of the largest per-barrel drops in crude futures ever have occurred in recent weeks.

 

A wave of pain is headed for major economies under the rosiest scenario. Even if it's worse in Asia and Europe, it will be felt on the bottom lines of American companies that rely on their customers and their factories.” [1]

 

1. EXCHANGE --- Markets: Wave of Pain Is Likely Headed Our Way Over the Hormuz Blockade. Jakab, Spencer.  Wall Street Journal, Eastern edition; New York, N.Y.. 25 Apr 2026: B3.