The Daily View: Learning to operate under geopolitical constraint

IGNORE the jawboning, the false deadlines and the political brinkmanship. Quietly, pragmatic progress is being made behind the scenes in the Strait of Hormuz.

Bilateral channels remain open and several governments are taking a more hands-on approach to securing ship movements. India, South Korea and Japan have negotiated limited transits, but China appears to be gaining the most traction. Traffic has ticked up this week, with roughly half of all successful passages linked to China-affiliated vessels.

Yet fundamentally, little has changed. The risk to shipping remains critical, and a handful of negotiated transits — still only a fraction of normal volumes — does not meaningfully shift market dynamics.

What this brief uptick does show is the market is learning to operate under geopolitical constraint, adapting to a short-term, government-approved trading system.

The real question is how long such a system will need to last.

An optimistic scenario still exists, though it keeps receding. The “Quick Peace” outlook assumes a workable agreement in the near term, allowing the strait to reopen by June with minimal restrictions. Under that path, the global economy rebounds quickly, returning to something like its pre-war trajectory by the fourth quarter of 2026.

At the other extreme is the doomsday scenario: persistent tensions, periodic flare-ups and sporadic trading windows dependent on political alignment and luck. That version leads to a global recession and sets a dangerous precedent for other chokepoints, normalising the idea that seaborne trade can be curtailed at will.

Most in the shipping sector still default to a middle-ground assumption. But without a definitive end to hostilities, security restrictions will continue to cap transits. The scale and duration of those limits will determine the economic fallout.

WoodMac’s latest assumptions sketch a scenario in which the ceasefire holds but peace talks drag on, with no settlement until late summer and the Strait of Hormuz largely closed until September. That would mean extended disruption to oil and LNG flows, shortages through the third quarter, higher near-term prices and a shallow global recession in 2H 2026.

Crucially, these middle-way scenarios are darkening as the crisis drags on. Markets had expected a stable ceasefire followed by a reopening of the strait, which explains the wide gap earlier this spring between near-term oil prices and much lower forward prices. But as late May approaches with the strait still shut, that optimism is fading.

What happens next remains uncertain. The coming weeks will reveal the true economic impact of the conflict that began on February 28. The success of mediation efforts will determine whether trade through the strait is restored or remains constrained. By autumn, we should know whether this war results in a temporary, uncomfortable downturn — or a far more serious global recession.

Richard Meade
Editor-in-chief, Lloyd’s List

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