A tense standoff between the United States and Iran over shipping through the Strait of Hormuz, the narrow waterway that carries a large share of the world's seaborne oil, is now in its seventh month, and it is still shaping markets around the world.
The strait sits between Iran and the Arabian Peninsula and is one of the most important chokepoints in global energy trade, since tankers carrying crude and natural gas from the Gulf pass through it every day. Tension over access to the strait has simmered for months, and this week brought fresh back and forth: President Trump rebuffed a proposed peace framework with Iran on Monday, a move that sent oil prices higher and pulled the S&P 500 and Nasdaq lower that day. The United States also rejected terms Iran had floated for reopening full shipping through the strait, which pushed crude prices up further and drove Treasury yields to fresh highs as investors weighed the risk of a longer disruption to energy supplies.
By Tuesday, the picture had eased somewhat. Oil prices retreated and Treasury yields came off their highs after U.S. and Iranian officials held separate indirect talks through mediators. Iran's foreign minister, Abbas Araghchi, who stayed in New York after the United Nations General Assembly, said Tehran expected to hear back from Washington on next steps. By Wednesday morning, crude futures had stabilized in the mid-90-dollar-a-barrel range, a level that is still elevated compared with where oil traded before the standoff began but well off the peaks hit earlier in the week.
For everyday consumers, the practical effect has been felt mostly at the gas pump and in the bond market. Elevated oil prices feed directly into shipping and fuel costs, which is one reason the Federal Reserve has cited energy prices as a factor keeping inflation elevated this year. Higher Treasury yields, in turn, have pushed up borrowing costs for everything from mortgages to corporate loans. Investors are watching for any sign of a breakthrough in the indirect talks, since a durable resolution over the strait would remove one of the biggest sources of uncertainty hanging over energy markets this year.
Markets will be watching for any announcement from the indirect US-Iran talks, and for tanker traffic data through the strait, as the clearest signals of whether the standoff is easing or deepening.
Why does the Strait of Hormuz matter for oil prices?
It is one of the world's busiest oil shipping chokepoints, so any threat to traffic through it tends to push crude prices higher.
Is the conflict affecting US gas prices?
Elevated crude prices tied to the standoff have been a factor keeping overall inflation elevated this year, according to market reporting.