The Strait of Hormuz remains closed, but oil prices are still far below historic highs and US stocks have yet to panic—why is the market so stable?

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Despite the closure of the Strait of Hormuz and the worsening situation in the Middle East attracting global attention, oil prices and US stock market performance have not fluctuated as violently as expected.

Currently, oil prices are only fluctuating around $100 per barrel. Compared to history, excluding inflation factors, Brent crude oil reached $179 after the Iranian Islamic Revolution in 1979, $155 during the Iran-Iraq war in 1980, $180 during the Arab Spring in 2011, and even surged to $130 during the Russia-Ukraine conflict in 2022.

The US stock market also seems calm. Even after Thursday’s downturn this week, the S&P 500’s decline from its pre-Middle East conflict closing point is still less than 3%.

Wall Street’s "Shock Absorbers" for Oil Prices

Facing an epic supply disruption, why haven’t oil prices soared sky high? On March 12, Wall Street Journal columnist James Mackintosh analyzed three key reasons in his article.

He believes the primary reason is the low starting price of crude oil and abundant inventories. Before the Middle East conflict, global crude oil inventory was at a five-year high, and the price was just $72. Although oil surged nearly 40% in the nine trading days before the conflict, the increase was astonishing; however, due to the very low base, the absolute price remains within a controllable range.

Secondly, Wall Street is betting real money on a "quick resolution." Trump’s remarks this Monday—"the war has been very thorough, it’s almost over"—immediately erased the gains from Sunday’s night session when oil prices spiked to $128. Looking at the futures market, the increase for December-delivered oil is less than half that of spot delivery. This suggests traders expect the supply disruption to last only weeks, not months or years.

Finally, macro intervention offset the real shortfall. The IEA and its member countries are releasing 400 million barrels from reserves. Even if the Strait of Hormuz loses about 15 million barrels per day in shipping capacity, these reserves—though the release pace and timing are unclear—have become an important market expectation and reason for oil price stability.

A True "Oil Crisis" May Require Oil Prices to Rise Another $50

Renowned energy analyst John Kemp analyzed that, although crude oil futures have risen more than one third since the conflict began and nearly two thirds this year, this is far from being called an "oil crisis."

On one hand, historical oil crises had much higher absolute prices; on the other hand, major economies now have significantly reduced their dependence on oil for heating and power generation. He wrote:

Previous oil crises were accompanied by bigger price increases and occurred when major economies were much more dependent on oil than they are now, primarily for heating, electricity, and transport.

Kemp estimates that oil futures may need to rise another $40 to $50 to trigger an economic recession comparable to historic crises. This macro-level buffer precisely explains why both sides of the conflict still have the confidence to continue fighting short-term.

Even though current oil price increases have not destroyed the world’s core economies, regional impacts are highly differentiated. Kemp points out that price increases are causing greater harm to developing economies (especially in Asia), which are facing the dual risk of soaring oil prices and fuel shortages.

US Stocks’ Safe Haven Logic Changes: Why Have Defensive Sectors Become Disaster Areas?

Regarding the phenomenon of the US stock market not fluctuating sharply for now, Mackintosh believes that, as the world’s largest oil producer, the US is naturally insulated from the direct impact of an energy crisis, sparing the stock market from panic.

Additionally, a strange phenomenon has occurred in the US stock market: geo-political conflicts usually drive capital into defensive sectors like staples and healthcare, but now this historical pattern has failed.

Since the Middle East conflict erupted, energy stocks in the US have risen as expected, while tech and software stocks have slipped less than 1%; the traditional safe haven—healthcare ETFs—have dropped about 5%, and staples ETFs have dropped about 6%.

Within the US stock market, an abnormal sector rotation is underway.

Why are defensive sectors now disaster areas? Another Wall Street Journal columnist, David Wainer, analyzed two deep-rooted causes.

First, this is "rotation within rotation." Before the conflict, concerns over AI bubbles and tech stock overvaluation had already driven money into defensive sectors for safety. When actual conflict erupted, these sectors were already very crowded and expensive. Nick Puncer, managing director at investment firm Bahl & Gaynor, commented: "The market’s focus shifted from concerns about white-collar job displacement and SaaS (Software-as-a-Service) apocalypse to war." Tech stocks without oil exposure or complex global supply chains have ironically become the cleanest trade right now.

Second, defensive sectors are mired in their own structural problems. Staples (like Campbell Soup) are being hit by both own-brand competition and GLP-1 weight-loss drugs changing snacking habits; healthcare giants (like UnitedHealth) are squeezed between government cost-control pressure and soaring medical costs. These problems are unrelated to geopolitical conflicts but are amplified at this moment.

Where Capital Really Flows

In the face of these disruptive logics, Wainer observes that Wall Street capital is now following two new guideposts.

First, geographic exposure determines resilience. Data shows that among the top 20 resilient companies in the S&P 500 healthcare and consumer sectors, 72% of revenue on average comes from North America; companies with the biggest declines are highly dependent on international markets, with North American revenue averaging only 59%. The logic is straightforward: the more US-focused a business is, the less harm it suffers from Middle East geopolitical ripples (such as supply chain interruptions and high energy costs in Europe).

Second, focus on PEG (Price/Earnings to Growth ratio). Citi strategist Traver Davis points out that, with high interest rates and geopolitical risks, investors should seek "high growth value" rather than absolute low valuation. In the healthcare sector, companies like AbbVie and Eli Lilly with real earnings growth are still favored by capital.

"Now Is Not the Time for Blind Confidence"

However, whether Wall Street columnists or energy analysts, all issued strong warnings.

Mackintosh emphasized that the stability of all assets currently rests on the extremely fragile assumption that "everyone wants to end the war quickly." But beyond game theory, revenge sentiments are hard to quantify. Given the narrow and easily mined Strait of Hormuz, just a few sunken tankers, the downing of a passenger jet, or a direct hit to a key Saudi pipeline would completely destroy the current optimistic pricing.

Kemp similarly warns that if the war drags on and the Strait of Hormuz remains closed to tankers for a long time, oil prices could still spiral out of control further, which will truly test the determination of all sides to maintain hostilities.

As the article says: "Now is not the time for blind confidence in the outcome."

Risk Warnings and DisclaimerThe market has risks, and investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own situation. Investments based on this are at your own risk. ```