The key question facing investors is whether markets have already priced in the possibility of military escalation – or whether more volatility is ahead.
Peter Cardello, of Spartan Capital Securities, pointed to the traditional safe haven narrative surrounding the US dollar and broader market implications.
“Well, let me first think about your guest going to the dollar as a safe haven; that’s always been the case, and the reason is that we’re a reserve currency and we’re the largest economy in the world. Right now, in terms of GDP growth, we’re the leaders among the seven industrialized nations, so yes, traditional hedges like gold and silver are considered a true dollar. Treasury bonds. If you look at what’s happening in the Treasury, why do we Consider foreign purchases as a safe haven in times of crisis.
The initial movements of the currency and bond markets reflect this logic. The greenback firmed as investors sought liquidity and relative safety, while U.S. Treasury yields edged lower amid foreign flows — a classic pattern of flight-to-quality.
Oil shock trading
More immediate and potentially disruptive effects are evident in energy markets.
Cardillo explained that the initial market reaction in oil was driven by positioning and uncertainty rather than fundamentals alone.
“Now, what this means for oil prices is, obviously, the first trade is always the shock trade, so you have a combination of three things, one, shorts to cover. Second, you don’t know where the prices will reach and eventually stabilize. And third, it’s true that Iran is producing 3%. But let’s take a step back and look at what happened with Suztram. It caused chaos, and that’s all it is.
The Strait of Hormuz remains the focal point. About one-fifth of the world’s energy trade passes through narrow waterways. Even a short-term disruption can have far-reaching effects along the supply chain and inflation expectations.
Cardillo pointed to the potential duration of military operations as an important variable.
“So the main emphasis here is how long is this operation going to last. I read just a minute ago that it appeared on your board, and it said that President Trump said it might last four weeks, well, if it lasts four weeks and the price of oil reaches $100, that will be significant because you’re sure that gasoline prices around the world will be even hotter and even hotter. Factor.”
A sustained move toward $100 per barrel will likely complicate the global inflation narrative that central banks have been cautiously embracing in recent months. Higher fuel costs quickly filter into transportation, manufacturing and consumer prices.
India and China at a strategic standoff
For energy importing countries, especially in Asia, are significantly higher.
A long-term closure of the Strait of Hormuz would disrupt at least one-fifth of the world’s energy trade. For India, an estimated 45% to 50% of crude oil imports pass through the strait, with natural gas and energy transiting about 60%. This poses an important hurdle: Turning to cheap Russian oil may be economically attractive, but it risks damaging trade and diplomatic relations with the United States.
Cardillo acknowledged that Asian economies would bear the brunt of any sustained disruption.
“Well, there is no doubt that India and China will suffer the most, because most of the oil is transported through the Strait of Hormuz to India and China, so they will probably come to the United States and buy oil. We must not forget that there is enough supply in the short term with the situation in Venezuela, and remember that oil is being paid for by India. The last trade deal was to buy oil from the United States and not buy oil from Russia, which is much cheaper. are, so if you pay more than what you are paying, obviously it is negative.
For India, the crisis is dire. Cheap Russian crude oil has helped reduce import bills in recent quarters. Disturbances in Hormuz could push New Delhi to diversify further into US barrels, but at a higher price – potentially widening the current account deficit and putting pressure on the rupee.
China faces a similar calculus, albeit with strategic reserves and alternative supply routes.
Markets at a crossroads
In the near term, markets trade on two interrelated variables: duration and volatility. If military action remains and shipping lines remain operational, the shock may turn into instability rather than a sustained crisis. But if the Strait of Hormuz suffers prolonged instability, the consequences will extend far beyond oil – to inflation, monetary policy and global growth.
For now, the dollar and Treasuries are attracting safe-haven flows, equities are stagnant, and oil remains the geopolitical risk barometer. Whether this phenomenon is a temporary development or a structural turning point will depend less on the headlines and more on how long the strait remains under threat.
