The largest oil supply disruption in history is not ending the way markets hoped. Even as ceasefire talks proceed and the Trump administration pushes for restored commercial shipping access through the Strait of Hormuz, a growing consensus among shipping analysts, commodity strategists, and risk specialists holds that oil flows through the waterway may never return to prewar levels. For metals investors, the implications run deeper than the crude price.

Iran’s blockade of Hormuz has fractured a chokepoint that once carried roughly 20% of the world’s oil and LNG. Analysts now project traffic may recover to only 60% to 70% of prewar volumes, creating a structural supply premium that feeds directly into inflation risk, energy-cost volatility, and the case for hard assets as a hedge against a permanently altered commodity landscape.

The war launched by the U.S. and Israel on February 28 prompted Iran to close the strait, cutting off the single most important energy transit route on the planet. CNBC reported that Iran “basically closed the sea lane” in retaliation, and that the resulting disruption has forced a fundamental reassessment of how Persian Gulf energy reaches global markets. The question now is not whether the strait reopens, but what “open” means in a world where Iran has demonstrated the ability and willingness to shut it down.

A Permanently Bifurcated Strait

Richard Meade, editor-in-chief of Lloyd’s List, laid out the scenario in stark terms during a May 21 briefing. Traffic, he said, might return to 60% to 70% of prewar volumes under the most plausible resolution. That is not a recovery. That is a new baseline.

“This doesn’t trigger a recession in the way that some of the doomsday scenarios that we’ve talked about before might suggest, but it does not allow the prewar rebound. It produces something more insidious: a permanently bifurcated strait where access is a function of political alignment, not freedom of navigation.”

That last phrase deserves attention. A shipping lane governed by political alignment rather than freedom of navigation is not a functioning global commons. It is a toll road controlled by a state actor with its own strategic interests. For shipowners, the calculus is straightforward: even if the guns go quiet, the risk of renewed fighting, the presence of mines, and the legal exposure from coordinating with Iran’s Revolutionary Guard all argue against routing Western commercial vessels through the strait.

Related Posts
Ultra-rich investors cut stocks and build cash reserves

The sanctions dimension is particularly thorny. Western ships that coordinate passage with the Revolutionary Guard could find themselves in violation of U.S. sanctions, creating a compliance trap that no insurer or shipowner wants to navigate. As we detailed when the Hormuz closure stripped 11 million barrels a day from global supply, the physical disruption was only the first-order effect. The legal and institutional aftershocks may prove more durable.

The Red Sea Precedent

Anyone tempted to dismiss the idea of a permanent traffic reduction should look at what happened in the Red Sea. Houthi militants allied with Iran began attacking commercial ships in November 2023 in response to Israel’s war in Gaza. The first strike was the hijacking of a cargo ship on November 19. By January 30, 2024, daily traffic through the Bab el-Mandeb Strait had collapsed from 75 ships to 31 vessels.

The attacks continued for two years. Jack Kennedy, head of Middle East country risk at S&P Global Market Intelligence, noted that the Houthis had not attacked a vessel in the Red Sea since the end of last year. Yet ship traffic still had not returned to 2023 levels. The pattern is clear: once a chokepoint is demonstrated to be vulnerable, the risk premium lingers long after the shooting stops.

Tomer Raanan, a maritime risk analyst at Lloyd’s List, drew the connection explicitly:

“You don’t need a massive navy in order to create major disruption in a maritime chokepoint.”

The Hormuz situation is worse. Unlike the Red Sea, where ships could reroute around the Cape of Good Hope, there is no clean alternative for the full volume of Persian Gulf exports. Raanan pointed out that pipelines cannot carry everything. “We’re not just talking oil that needs to come out of Hormuz,” he said. Liquefied natural gas, petrochemicals, and other cargo all depend on that waterway.

Pipeline Workarounds and Their Limits

Saudi Arabia and the United Arab Emirates are already using pipelines to divert millions of barrels per day to export terminals on the Red Sea and the Gulf of Oman. The UAE is accelerating construction of a second pipeline that bypasses Hormuz entirely, with an operational target of 2027. U.S. Energy Secretary Chris Wright framed this as a structural shift:

“This is a card you can play once. There’ll be other routes for energy to get out of the Persian Gulf. We will see a decreasing importance from the Strait of Hormuz, but not a decreasing importance of those nations’ energy production and energy supply.”

Wright’s confidence is worth testing. Pipeline capacity takes years to build and cannot replicate the flexibility of open shipping lanes. The volumes that once moved through Hormuz were enormous. About 20% of the world’s oil and LNG supplies passed through the strait before the war. Replacing that with fixed infrastructure means higher capital costs, longer lead times, and new chokepoints of a different kind.

The idea that Gulf producers will simply build their way around the problem assumes stable geopolitics, sustained capital investment, and no further disruptions. Given the track record, that is a generous assumption. As we covered when Iran-U.S. tensions reignited over Hormuz attacks and crude surged 6%, the region’s capacity for surprise has not diminished.

Iran’s Leverage and the Ceasefire Gamble

Amos Hochstein, who served as a senior energy and national security advisor to former President Joe Biden, offered a blunt assessment on CNBC’s “Squawk Box.” He said Middle East leaders believe Iran has already taken control of Hormuz, regardless of what any ceasefire agreement says.

“No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future. It doesn’t even matter what the deal says. Everybody in the region believes that.”

That perception matters more than the legal text of any agreement. If regional producers and global shipowners operate on the assumption that Iran can close the strait again at will, they will price, route, and invest accordingly. Helima Croft, head of global commodity strategy at RBC Capital Markets, told clients in a Thursday note that any resolution leaving Iran with operational control over the strait would result in “appreciably lower flows through the waterway.”

Kennedy at S&P Global Market Intelligence said the current ceasefire is likely to hold for now, as the Trump administration appears to be prioritizing increased commercial shipping access through Hormuz. But he added a warning: there is a severe risk the war could resume over the next year unless a permanent resolution is found to Iran’s nuclear and ballistic missile programs.

That is a narrow window. And the market knows it. As we noted when oil whipsawed on Iran peace hopes while the underlying supply damage persisted, traders have learned to distinguish between headline optimism and structural reality.

What This Means for Gold and Hard Assets

A permanently constrained Strait of Hormuz is not just an oil story. It is an inflation story, a dollar story, and a gold story.

  • Structural energy premium: If Hormuz flows settle at 60% to 70% of prewar levels, the world absorbs a persistent supply deficit that keeps energy costs elevated and feeds into headline inflation.
  • Fiscal and monetary pressure: Higher energy costs strain consumer budgets and government finances simultaneously, narrowing the policy space for central banks already caught between inflation and growth concerns.
  • Geopolitical risk premium: A bifurcated strait governed by political alignment introduces a new layer of uncertainty into global trade, reinforcing gold’s role as a hedge against systemic instability.
  • Dollar credibility: If U.S. sanctions create compliance traps that discourage Western shipping through Hormuz, the unintended effect is to accelerate the bifurcation of global trade into sanctioned and non-sanctioned channels, a dynamic that erodes dollar centrality over time.

The oil market has already priced in some of this risk. As we reported when crude crashed nearly 7% on Iran deal hopes even as a 10-million-barrel supply gap persisted, the disconnect between diplomatic optimism and physical-market reality has been a recurring theme. Gold investors should watch the same gap.

The Deeper Signal

What Meade called “something more insidious” is really a lesson about chokepoints and trust. Once a critical piece of global infrastructure has been weaponized, the system does not simply snap back. Insurance premiums stay elevated. Routing decisions become permanent. Capital flows toward alternatives that may be less efficient but feel safer. The Red Sea precedent proved that. Hormuz, carrying far greater volumes and far greater strategic weight, will prove it again on a larger scale.

For investors holding gold or considering an allocation to hard assets, the structural message is straightforward. A world in which 20% of global oil and LNG supply must find new, more expensive routes to market is a world with a higher floor under energy costs, a stickier inflation problem, and a stronger argument for owning assets that do not depend on the smooth functioning of a system that just demonstrated its fragility.

The strait may reopen. The barrels may not come back. And in the gap between those two facts, gold does what it has always done: hold value when the architecture of global trade cannot be taken for granted.