The renewed violence in the Middle East this week – both in the Gulf and along the Saudi-Yemen front – shattered a month of relative calm, during which Washington ratcheted up its economic pressure on Tehran. Iran's Revolutionary Guards warned they would sharply escalate their response to further attacks, although there are growing signs that Tehran's grip over Hormuz may be weakening.
Months of military exchanges have degraded Iran's radar network and strike capabilities around the strait. Meanwhile, U.S. demining operations and an expanding U.S.-protected shipping corridor along Oman's coastline have enabled more vessels to enter and leave the Gulf.
Yet Wednesday's attacks were a reminder that Iran retains the ability to severely disrupt traffic through the world's most important oil chokepoint.
President Donald Trump argued that Tehran is seeking to influence November's U.S. midterm elections, which will determine whether Republicans retain control of Congress.
"I think war is going to end immediately after the election because they can't hold out any longer. They're desperate to try and affect the election," he told reporters.
For now, however, elevated fuel prices are becoming an electoral liability for Trump. The president has repeatedly argued that energy prices, which have soared since the outbreak of war, will fall once the conflict subsides.
The economic fallout is already spreading well beyond the Middle East. The European Central Bank is expected to raise interest rates on Thursday for the second time this year as higher oil and natural gas prices continue to feed inflationary pressures across the region.
The war has undoubtedly disrupted oil and gas exports from the Gulf. But the market is increasingly preoccupied with a more fundamental question: how much oil is actually flowing through the Strait of Hormuz?
Traders, energy executives and government officials are all looking for an answer, yet they are arriving at sharply different conclusions. What is becoming increasingly clear, however, is that the uncertainty itself has become a major market force, embedding a persistent risk premium in crude prices that could endure for months.
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