Hormuz reopening in June is a "pipe dream"! This bank believes that oil prices could hit record highs in the summer, thereby impacting the stock market.
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The effective obstruction of passage through the Strait of Hormuz is profoundly reshaping the global logic of energy pricing. However, the widely bet on "reopening in June" is likely underestimating the complexity of the crisis.
Helima Croft, Global Head of Commodities at Royal Bank of Canada (RBC), is extremely skeptical about the Strait “reopening in June” or shipping returning to pre-Middle East conflict levels in the short term. She calls the market’s optimism “magical thinking”, based on a highly fragile assumption: as long as the economic pain is deep enough, it will automatically trigger some policy lever to let oil tankers pass through the Strait again.
In contrast, Goldman Sachs uses the “reopening starts soon, completed by the end of June” as its baseline, predicting Brent to fall back to $90/barrel by year end. Croft strongly refutes this, arguing that the market severely underestimates the duration and impact of the blockade.
She warns that if the shutdown of about 12.5 million barrels per day persists, the cumulative loss by month’s end will surpass 1 billion barrels; if extended to June, losses will approach 1.5 billion barrels. With the summer peak in demand approaching and inventories rapidly depleting, oil prices are “very likely to exceed the highs of the Russia-Ukraine conflict and approach the 2008 peak”, with rebalancing only achieved through demand destruction—by then, bond yields will rise significantly, and the stock market faces severe downside risk.
Reopening paths are narrow; both diplomatic and military options are constrained
The prevailing market narrative for “reopening in June” mainly bets on two paths: either a negotiated solution or unilateral U.S. military intervention. But from Helima Croft’s perspective, neither scenario looks optimistic.
Militarily, the United States could theoretically deploy more than 100,000 ground troops to forcibly clear the Strait, but the White House has no interest in such a massive, prolonged Middle East war, which also violates “America First” campaign promises. Croft believes any limited action cannot accomplish the forced reopening of the Strait, and a full-scale invasion is not on the table.
Diplomatically, reaching an agreement in the near term is equally difficult. Iran’s uranium enrichment capability and inventory remain unresolved issues, and crucially, even if the nuclear issue is settled, Iran will not easily relinquish control of the Strait—the strategic deterrent value of this waterway now rivals the nuclear program itself, becoming a core bargaining chip that is almost impossible to give up voluntarily.
Double blockade unlikely to shake Tehran, regime resilience exceeds expectations
The White House once hoped to use a “double blockade” to generate enough economic pressure to force Iran to loosen its grip on the Strait. Early predictions even suggested Iran’s oil storage tanks would fill up in 13 days, forcing authorities to compromise quickly.
But in reality, Iran still has weeks or even months of buffer in storage capacity, and its leadership has displayed strong resilience, with authorities maintaining firm control over security forces and showing no obvious internal fissures.
Thus Croft judges that this strategy is unlikely to fundamentally alter Tehran’s approach before June. The market may continue to monitor whether regime stability cracks under fiscal pressure, but for now, the “double blockade” is not enough to sway Iranian decision-making.
Even if reopened, traffic recovery will be prolonged
Even if the Strait of Hormuz eventually reopens in some form, as long as Iran retains operational control, actual traffic will fall far short of pre-war levels. Croft notes that so long as Iran is under sanctions, Western enterprises will remain wary of the tolls imposed, and recurring risks of maritime attacks will continue to suppress shipping companies’ willingness to return.
Several leading shipping industry experts have already stated clearly that a reopening under Iranian control will lead to restricted volume, and only Iran’s clear military defeat along with unrestricted transiting can fully restore the Strait’s capacity.
Using the Red Sea situation as a reference: Although the U.S. and Houthi forces reached a ceasefire agreement a year ago, Red Sea shipping volume is still down about 56% from pre-conflict levels, with many major shipping companies continuing to bypass due to concerns over Bab el-Mandeb security.
Croft believes that even if some degree of normalcy returns to the Strait of Hormuz, traffic will likely only reach the currently restricted Red Sea level. Achieving that alone will take a considerable amount of time—ship dispatching and logistics coordination after reopening will itself require weeks, not counting the time for risk reassessment by shipping companies.
Oil prices may approach 2008 peak, both bond and stock markets under pressure
Croft believes that as demand ramps up fully for summer and inventories are rapidly depleted, oil prices are highly likely to surpass the highs during the Russia-Ukraine conflict and approach the historical peak of 2008. In this scenario, demand destruction will ultimately become the mechanism to rebalance the market—only when prices are high enough to curb consumption can the supply-demand gap be bridged.
However, before demand destruction truly occurs, bond yields will rise sharply first. Currently, global long-term rates are already breaking out, with inflationary pressures rekindled and leverage rapidly swelling, tightening the macro environment. Crucially, the stock market has begun to respond more sensitively to bond signals—under this backdrop, the dual surge of oil prices and interest rates is likely to end with a decidedly un-mild market downturn.
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