Why the Strait of Hormuz matters
- Handles about 20 million barrels of oil per day
- Main export route for Gulf producers
- Even partial closures quickly raise prices
The strait normally handles around 20 million barrels of oil per day. According to SEB’s experts, Iran has now demonstrated that it can keep the shipping route closed with relatively simple drones and missiles, making a quick reopening unlikely. Brent crude has traded between USD 90 and USD 120 in recent days.
Higher inflation risks and pressure on interest rates
The rise in energy prices is pushing inflation expectations higher. SEB’s economists say that if oil remains elevated into the autumn, the European Central Bank could raise interest rates up to two times this year.
“The impact from energy is already visible, and markets are beginning to price in more tightening”, says Namik Immelbäck, chief strategist at SEB. “If oil stays around these levels, we should expect weaker growth indicators and a more cautious stance from investors”.
Equity markets under pressure
Equity markets have also reacted. Systematic funds have begun reducing exposure, and the S&P 500 has pulled back towards its 200-day moving average. SEB now recommends a neutral equity allocation and a modest overweight in defensive sectors.
“We are moving into a phase where both systematic and long-term investors may adjust risk lower”, says Thomas Thygesen, head of equity strategy in SEB. “The path back to new highs will take longer if oil prices remain high and growth indicators weaken”.
Geopolitical risks remain
A full return to normal oil flows would require a halt to military activity, alignment of goals between US and Israel and for Iran to fully stop being a threat to shipping. Immelbäck considers this unlikely in the short term. Even if hostilities ease, Iran may still restrict flows enough to keep prices elevated.
SEB’s base case assumes oil prices in the USD 90–110 range over the coming months, weaker purchasing manager indices and inflation in Europe rising towards 3 to 4 per cent. A deeper recession scenario is still not the main expectation, but the risk of longer disruptions remains.