As of this writing, the Strait of Hormuz remains effectively closed since February 28. Roughly 20% of the world's seaborne oil stopped moving through the chokepoint. The International Energy Agency described the event as "the largest supply disruption in the history of the global oil market." Gulf producers shut in nearly 9 million barrels a day of production. U.S. gasoline at the pump jumped from $2.98 to over $4.00.
Every historical template for this kind of shock, 1973, 1979, 1990, pointed to a stagflationary body blow that breaks markets. After 30 years of watching cycles play out, I've learned that when the tape refuses to confirm a catastrophe narrative, it's usually seeing something the headlines miss. That's exactly what is happening with the Strait of Hormuz.
Brent peaked near $120 and now sits around $96, well below the $132 the Dallas Fed modeled for a closure lasting three quarters. The S&P 500 is grinding higher. China, which takes roughly a third of its crude through the waterway, hasn't buckled.
So the question isn't why the catastrophists were wrong. It's what they missed, and where the real risks now sit.
The "20% of global oil closed" framing was always misleading. In reality, the reduction in impact came primarily from four forces, and the primary source documents each.
First, Middle Eastern producers rerouted crude around the strait. Rystad Energy's Tom Liles estimates that 5 to 6 million barrels a day can flow through Saudi and UAE pipelines terminating at the Red Sea and the Gulf of Oman. That's roughly a third of the region's normal seaborne exports, redirected within weeks.
By late March, Iran had also granted transit rights to tankers flagged by China, Russia, India, Iraq, and Pakistan. In other words, Iran's move to close the Strait of Hormuz served as a rationing mechanism rather than a closure.
Secondly, the strategic reserves finally worked as designed. The IEA coordinated a 400-million-barrel release, the largest in its history. The U.S. SPR alone is putting 1.4 million barrels a day on the water. Bernstein's research team captured the ceiling on that policy response in a single line:
That's correct, and that's also enough. Buying time was the entire job while pipeline workarounds scaled and demand destruction started to bite.
Third, China came into the crisis loaded. EIA data show Chinese commercial oil inventories near 1 billion barrels heading into February 2026, plus another 360 million barrels of state reserve. That’s several months of imports on hand. Combined with Iran’s selective transit allowance, Beijing was never going to let this break its economy.
Finally, and most importantly, the United States has dramatically changed structurally since the 1970s. Domestic crude production exceeds 13 million barrels a day, which insulates the US against foreign shocks, as we saw during the Arab Embargo. Furthermore, LNG exports averaged nearly 18 billion cubic feet per day in March, according to the EIA's April Short-Term Energy Outlook. Less than 10% of the U.S. crude supply transits the Strait of Hormuz. In a global supply shock, America is the marginal supplier, not the marginal victim.
Notably, the Dallas Fed's worst-case scenario for a closure confines the damage to a single quarter, estimating a 2.9 percentage point annualized hit to global real GDP. We're tracking closer to the base case, which assumed rerouting, reserves, and demand response would absorb most of the damage. So far, they have.
Here's where I think consensus is mispricing the setup. If the catastrophist case on oil was wrong going in, the bullish case on oil from $96 is probably wrong going out.
When the Strait of Hormuz fully reopens, three things hit at once.
This is a textbook oversupply setup.
The only genuine offset is SPR rebuilding. More than 30 IEA countries drew down reserves and will spend the back half of 2026 refilling them. Kpler's commodity analysts recently noted that "the back end of the curve is widely viewed as undervalued," with Brent for late 2026 delivery priced around $74, versus their fair-value estimate of around $85.
I agree with the direction but not the magnitude. Restocking demand is real, but it spreads over quarters while supply returns over weeks. That asymmetry is the dislocation risk. My base case is that Brent retraces toward the low $70s within 90 days of a durable ceasefire. However, there is a decent risk of an overshoot toward $60 if demand destruction from $4+ gasoline lingers. That's not a prediction of a crude collapse; rather a prediction that the pain won't be symmetrical. The upside from here is modest; downside scenario sharp.
I really think the market already knows all of this; supply shock has been metabolized; earnings are now driving tape. And in this case bulls have data.
FactSet's April 17 Earnings Insight shows 88% of reporting S&P 500 companies have beaten first-quarter EPS estimates well above 10-year average 76%. Aggregate earnings are coming in 10.8% above estimates versus historical 7.1%. Analysts now project 18% full year 2026 earnings growth. Barclays' Venu Krishna lifted his 2026 EPS estimate to $321 from $305. FactSet's 2026 net margin forecast sits at 13.9%; highest on record. Goldman Sachs framed dynamic in January note arguing earnings growth not multiple expansion would do "heavy lifting" for index returns.
Furthermore, as shown, analysts are not only hiking earnings projections for 2026 but 2027 as well with those upward revisions heavily outpacing historical norms.
That's a legitimately constructive backdrop. Stocks do follow earnings over time, and the Q1 beat rate is signaling real operating resilience. The market isn't bid higher on hope; it's bid higher on delivered numbers.
Two caveats, though.
First, forward earnings estimates almost always rise until they don’t. Rising forward EPS is default state of every expansion; not unique bullish signal. What matters is when revisions roll over—and they roll over with lag. Goldman's Ben Snider recently noted narrow slice revisions concentrated names like Exxon Mobil and Micron Technology has done most work behind S&P 500's record highs. Median index constituent has seen little upward revision. That's rally leaning few winners; not broad upgrade.
Furthermore, forward 12-month P/E sits 20.9; above 5-year average 19.9 and 10-year average 18.9. At those multiples clean beat earns muted reaction; guidance cut gets punished hard. Real test isn't Q1 numbers; it's Q2 guidance. If retail travel discretionary names start trimming outlooks once $4+ gasoline hits flows consumer wallets forward estimates finally break uptrend.
Until that happens path least resistance still higher.
I realize many readers will not agree with me—that’s okay; as always it takes two opinions make market both think they’re right. However after 30 years navigating portfolios through shocks like one here are some suggestions consider given Strait Hormuz setup stretched equity valuations.
- Don't chase the oil rally. Crude is trading geopolitics, not fundamentals. The reward profile on long crude from $96 is skewed against you. Therefore, if you own energy producers up 40%, take the win and don't get greedy. Furthermore, don't add to them at this juncture.
- Own energy infrastructure, not barrels. Midstream operators and LNG exporters have less exposure to commodity prices and benefit from a world that now prioritizes energy security over cost. Those cash flows don't collapse at $70 Brent.
- Respect the equity message without stretching for it. At 20.9x forward earnings, the S&P 500 isn't priced for accidents. Trim your biggest winners back toward target weights. Adding to the strength here is paying a tax.
- Hold duration. Treasuries have priced in resilient growth. If oil retraces hard and demand destruction lingers, the Fed gets cover to ease. The belly of the curve rallies. That’s a natural hedge against the oversupply scenario described above.
- Keep cash. Equities, oil, and credit are all pricing a clean exit from the conflict. If that exit slips, either through a broken ceasefire or through oversupply hitting before restocking ramps, dry powder becomes the most valuable asset in the book.
Bottom line: The market isn't wrong to be calm about the Strait of Hormuz, and it isn't wrong to be bid on earnings. But the risk has rotated. It's moved from a spike in oil to a collapse in oil, and from geopolitics to the equity multiple. Both sides of that trade need managing, not ignoring, because the tape is calm.