Posted:April 6, 2026
Categories: Bonds, Central Bank, China, Economics, Geopolitics, Market Update, US Treasuries
Chokepoint- That narrow, confined, geographical feature…Every empire that has ever risen to dominance understood one thing: he who controls the flow of trade traffic controls the flow of wealth, and he who controls the flow of wealth controls the world. The Strait of Hormuz is twenty-one miles wide at its narrowest point. And right now, those twenty-one miles are the most consequential piece of strategic geography on earth.
In our modern world, energy plays a vital role in economic growth and decision-making. In fact, it’s difficult to comprehend a world without energy derived from oil, hydrocarbons, fertilizers, and other commodities that power the global economy. Throughout time, the division of labor and wealth accumulation would look vastly different if humanity did not have a constant thirst for energy.1
Oil has now become the most coveted energy commodity in the world. When oil prices skyrocket, the global economy suffers. By any measure of physical volume, monetary value, or strategic importance, oil is the most critical product carried by global trade. About 75% of all oil consumed globally (around 100 million barrels per day) is shipped. To move the vast number of barrels daily, ships are heavily funneled through a few highly strategic global chokepoints.
Strait of Hormuz
Geographic choke points have dictated the flow of wealth, the projection of military power, and the rise and fall of empires for millennia. Just as the Strait of Hormuz is critical today as the primary artery for global energy supplies, historical chokepoints were fiercely contested because they controlled the flow of vital commodities (energy or otherwise).
Historical examples include the Strait of Malacca, the Turkish Straits, the “Gate of Sorrow” in the Red Sea, the Panama Canal, the Suez Canal, and, of course, the Strait of Hormuz.2
The outcome of the war in Iran largely depends on who controls the Strait of Hormuz (see figure 1). This narrow waterway is the world’s most critical geopolitical and economic chokepoint, serving as the circulatory system of global commerce. Prior to the war in Iran, approximately 20% of the world’s global oil and hydrocarbon liquids production, 30% of all fertilizer flows, as well as essential supplies of sulfur and helium, flowed through Hormuz.
Furthermore, roughly 80% of the energy that travels through the Strait is exported to Asian markets. Because of this concentration, a prolonged closure threatens to cause outright energy and food shortages for developing nations, transforming a logistical issue into a severe humanitarian and economic crisis.
Figure 1: The Strait of Hormuz
Source: Wikimedia Commons3
While oil prices have surged to over $100 per barrel, the full physical impact of the closure of the Strait of Hormuz has not yet been felt due to a logistical air pocket of sorts. For example, according to many analysts, it takes approximately 20 to 40 days for a tanker to transit from the Persian Gulf to its destination (1.5 to 3 weeks to Asia, 3 to 4 weeks to Europe, and 4 to 6 weeks to the U.S.). Because the war started in late February, the global economy has been running on oil that was in transit before the Strait was closed.
Once this air pocket is exhausted in mid-April, the physical reality of the missing 20 million barrels of oil and 15% of global fertilizers will hit the market hard. Analysts warn this will trigger a dynamic bidding war for tankers already at sea, and force severe rationing, particularly in highly exposed regions like Asia and Australia.4
Energy Flows & Capital Wars
Controlling the Strait effectively creates a permanent toll booth for global energy flows, granting the controlling power immense leverage over global commerce and the artificial intelligence technology race. Much of the current geopolitical conflict comes down to control of energy and its impact on the much larger capital and currency war between the United States and China.
China is the world’s largest importer of crude oil and relies heavily on energy flowing from the Middle East through the Strait of Hormuz and the Strait of Malacca. A prolonged war in Iran will certainly impact the Chinese economy.
The United States utilizes its dominance through the dollar, the global reserve currency, to wage financial warfare. China uses its massive capital reserves and status as the world’s top oil buyer to knit together an alliance of sanctioned states aimed at systematically dismantling U.S. financial hegemony. Both powers find themselves burdened by heavy debt, needing strong economic growth and lower interest rates to climb out of debt.
Neither country can sustain a prolonged stagflationary global economy. Rising prices, slowing growth, and higher interest rates could compound these countries’ debt burdens. In that sense, the Strait of Hormuz is not merely a military or political chokepoint. It is a financial one. And markets, as they always do, are beginning to tell that story in real time. Let’s take a look at the market reaction.
Market Reaction
For global markets, energy shocks are extreme events. Many times, energy shocks are short, rapid events, such as COVID-19, in which global markets experienced a demand shock. However, the war in Iran has caused a supply shock to markets. Further, the fear is that this supply shock could last much longer. As a result, global markets have seen a repricing of risk, interest rates, inflation, and global liquidity. The risk of the market experiencing prolonged stagflation is now a reality. This is a challenging environment for almost every asset class as stagflation sets in with high inflation, rising interest rates, and low growth. This typically leads to an economic recession and declines in stock and bond prices.
Oil
Oil markets spiked last month, with WTI Crude and Brent crude both surging over $100 per barrel. Figure 2 shows the price of WTI Crude over the last year, as it has spiked well above its moving averages. The market remains highly anxious. Betting markets are currently placing a 27% probability that oil could reach $150 a barrel by the end of June if the Strait of Hormuz remains closed.
Figure 2: WTI Crude Oil, 1-year (as of 3/31/2026)
Source: TradingView
Bonds
Over the past five years, the bond markets in the U.S., U.K., and Germany have seen rising interest rates amid market corrections. This action flies in the face of what’s normal for markets during the great bond bull market of the last 40 years. Figure 3 below shows the US 2-year, 10-year, and 30-year interest rates. All have risen since the start of the war.
Figure 3: US 2-year, 10-year, 30-year, Since start of the War (as of 3/31/2026)
I believe there are two main reasons we’re seeing bond prices fall (interest rates rise) at this point in time.
While interest rates are elevated, bond spreads have not blown out, and the MOVE volatility index has not yet gone into danger territory. However, the longer the war persists and the longer oil prices remain elevated, the greater the risk of dysfunction in the U.S. Treasury market. This is the bet the U.S. is taking. Short-term pain for long-term gain, at least until the bond market breaks.
Stocks
Despite the chaos, the S&P 500 fell only about 8% from its all-time highs by late March, a relatively minor drawdown by historical standards. The S&P 500 ended March below the critical 200-day moving average (red line in Figure 4). The relative strength index (RSI) finished March around 45, signaling weakness, but not the sort of weakness you would see in a major market selloff. International and emerging markets have fared slightly better over the past year as capital has rotated towards those markets.
Figure 4: S&P 500, 1-Year (as of 3/31/2026)
Gold
As the world’s money, gold typically sells off in a supply-driven energy shock, much like U.S. Treasuries, as various market participants need to sell for varying reasons. For example, Turkey has sold 120 metric tons of gold since the start of the Iran War ($13.2 billion). Facing economic difficulties and a depreciating currency, the Turkish central bank was forced to sell its gold to raise U.S. dollars, using those proceeds to buy back its currency (the lira) and prop up its exchange rate.
A similar reaction has occurred from highly leveraged hedge funds/institutional investors. Since the value of gold has risen dramatically in recent years, it has been a natural target for selling by leveraged players needing to meet margin calls.
Gold also fell amid rising inflation expectations, which reduced the odds of a near-term interest rate cut by the Federal Reserve. As mentioned above, this pushed bond yields higher across the board. Because gold is a non-yielding asset, higher interest rates increase the opportunity cost of holding it, prompting capital to exit.
Amidst all this, gold is still up 6% on the year and remains in a healthy bull market.
Figure 5: Spot Gold, 1-Year (as of 3/31/2026)
Conclusion
Historically, every chokepoint that has threatened to strangle the flow of commerce eventually yielded. Not without cost, not without pain, but it yielded. The Strait of Hormuz will not be the exception to that rule.
The war and the subsequent closure of the Strait of Hormuz have triggered a complex and highly volatile market reaction, but certainly not anything close to panic. However, the longer the war continues and the longer the Strait remains closed, the more likely we are to see larger sell-offs and drawdowns. This is a moment that rewards patience and diversification. The narrow passage is under pressure. Stay the course. The world’s commerce has been here before, and humanity has always found a way through.
HISTORICAL BOND RATES
Source: TradingView5
HISTORICAL MARKET RETURNS - ANNUALIZED
Sources: Kwanti Portfolio Analytics6, TradingView, Morningstar, Inc.7
HISTORICAL MARKET RETURNS - YEAR BY YEAR
Sources: Kwanti Portfolio Analytics, TradingView, Morningstar, Inc.
References
DISCLOSURES & INDEX DESCRIPTIONS
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