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US-Iran Ceasefire Breakdown Revives Strait of Hormuz Risk
US strikes on Iran and Iranian retaliation break the month-long truce, raising the risk of a Strait of Hormuz disruption. Oil risk premium is repricing. Next catalyst: whether diplomatic talks resume or conflict widens.
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The month-and-a-half long truce between the US and Iran has come unstuck after a series of kinetic exchanges. Washington struck a missile launch site in Iran and targeted Iranian boats it alleged were attempting to mine the Strait of Hormuz. Tehran separately shot down a “hostile” stealth drone and struck a vessel at sea. Israel simultaneously intensified its Lebanon campaign against an Iran-backed militia, compounding the shift from diplomatic overtures to armed confrontation.
Why the Oil Supply Premium Is Now Repricing
This is not a minor skirmish. The Strait of Hormuz handles roughly one-fifth of global oil transit. Any credible threat to that passage forces traders to bake in a disruption risk premium that had largely been absent during the recent truce talks. The US strikes and Iranian retaliation create a direct mechanism for higher crude prices, even if physical supply has not yet been interrupted.
The naive read is that these are isolated, low-casualty actions. The better market read is that the ceasefire breakdown resets the risk baseline: the probability of a broader conflict that could actually choke the waterway has risen, removing a tail-risk discount that had been priced into crude futures and energy equities. For traders, this means the risk premium in the front month contracts likely needs to be rebuilt, especially if there is no rapid return to talks.