Global Market: Strait of Hormuz standoff may keep oil volatile, cautions Seth R Freeman

Global energy markets are facing renewed uncertainty after Iran’s Supreme Leader indicated that the Strait of Hormuz could remain closed, raising fears of further disruption to oil supplies. The development has intensified concerns in financial markets, as the narrow waterway is one of the world’s most critical energy chokepoints through which roughly one-fifth of global oil supply flows.

Speaking to ET Now, market expert Seth R Freeman from GlassRatner Advisory said the latest remarks underline the strategic leverage Iran holds over global energy flows.

“Yes, it is quite apparent, they have figured it out they have a very strong leverage point there in the Strait of Hormuz. And we have two defiant heads of state and battling each other with words. And the problem is that high oil prices affect the entire world, not just the United States,” Freeman said.

Oil Markets React to Rising Tensions

The threat to the Strait of Hormuz has already triggered sharp reactions in oil markets. Traders and policymakers are closely monitoring the situation, as any sustained disruption could significantly tighten global supply. The waterway is widely regarded as the world’s most important oil transit route, linking Gulf producers to international markets.

Despite emergency measures such as potential reserve releases, market sentiment suggests that the current spike in oil prices reflects deeper fears of a prolonged conflict rather than temporary supply disruptions.De-Escalation Remains Uncertain
When asked how the conflict might eventually de-escalate, Freeman acknowledged the complexity of the situation and the difficulty of finding a quick resolution.
“That is a huge question. I am not sure how we remove ourselves from this. I believe that the original thinking might have been that this was going to be as simple as changing the leadership of Venezuela with a huge miscalculation about the strength and the fact that this regime is religious based as much as simply power and economic power and entrenchment. And this is a whole another situation besides having this arsenal of missiles and drones and the willingness to use them,” he said.
The increasingly sharp rhetoric between global leaders has heightened fears that the conflict may persist far longer than initially expected.

Logistics Constraints Add to Supply Risks
Freeman also highlighted the logistical challenges involved in rerouting global oil supplies if the Strait remains disrupted. While some Gulf producers are attempting to bypass the strait using alternative pipelines, these routes cannot fully compensate for the massive volumes normally transported through the channel.

“Well, I guess we all know by now that 20% of the world’s oil goes through there. I was reading earlier this afternoon that Saudi Arabia is starting up a pipeline that will be able to bypass the Strait of Hormuz, but that is not going to be enough to make up the difference in global supply. You cannot just turn things on and shift the logistics for oil overnight,” he said.

Freeman added that even if the crisis were resolved quickly, supply chains would still take time to normalise.

“And the other problem is, let us say, this does get resolved in the next week or two, it could still take over a month or so just to work it through the system. As an example, something kind of minor, I need to go to Los Angeles to Southern California in the morning and flights that are normally maybe $199 are as much as $450 to get down to Southern California from San Francisco. And I have not even looked at international flights,” he said.

Rising Oil Prices Could Hurt Consumer Demand
Beyond energy markets, Freeman warned that sustained high oil prices could ripple through the global economy by weakening consumer sentiment and increasing inflationary pressures.

“Well, oil is just so critical to the entire economy globally, not just here in the United States. Plus, what this really does is affect sentiment as well. And if consumers feel they need to hunker down because they are seeing higher petrol, gas prices and seeing other kinds of products and heating and electricity becoming more expensive, consumers are going to cut back as well,” he said.

He also noted that rising energy costs would affect industrial sectors that rely on petroleum-based inputs, further amplifying economic risks.

“And then you have the impact on industrial products that use the derivatives of oil. So, this is a huge-huge risk off situation,” he added.

Concerns Extend to Financial Markets
Freeman also pointed to emerging stress in credit markets, warning that financial instability could compound the economic fallout if the conflict drags on.

“You said something about the private credit markets and PIMCO came out earlier this week expecting a quite a crisis in private credit and redemptions in the publicly traded US private credit companies. So, it could just really be a snowball kind of effect,” he said.

With geopolitical tensions still escalating and the Strait of Hormuz at the center of the crisis, analysts say energy markets may remain volatile in the coming weeks as investors attempt to gauge how long the conflict — and its economic consequences — might last.