Look more, move less

Ask AI · How does the repeated navigation of the Strait of Hormuz affect energy prices?

1. Multiple narratives intertwine, volatility intensifies

In the past week, almost all major asset classes have been transmitting chaotic trading signals—crude oil has seen extreme fluctuations of 42.0%, 17.6%, and 9.8% consecutively, with volatility showing no signs of convergence. Gold experienced swings exceeding 4% on two days out of five trading days, and nearly 10% on another day. The A-shares seem to have weathered significant storms, but in the face of recent extreme fluctuations in many major asset classes, they can only be considered as minor players.

Why is it so chaotic? Because the market is not trading on a single main line but is simultaneously reflecting prices on four narratives: the repeated escalation and de-escalation of the Middle Eastern conflict, the consideration of central bank interest rate hikes, the interruption of physical oil and gas supply, and trading on longer-term growth recession. These narratives intertwine and amplify each other. Relying on a single piece of news or a strong judgment to make trades is the most common mistake at this stage.

In fact, at the geopolitical level, the situation in the Middle East remains highly uncertain. Trump has extended the pause on strikes against Iranian energy infrastructure to April 6. Where is the negotiation table? Who is sitting at it? What is being discussed? All are highly uncertain, and even the ultimate negotiation goals are unclear. The probability of the situation escalating or de-escalating in the next two weeks is almost 50-50. In terms of global commodity pricing, the navigation status of the Strait of Hormuz is currently the absolute eye of the storm in volatility, with additional disturbances from the Red Sea and the Russia-Ukraine region. The strait opens and closes, and ships occasionally turn back, and this repetition itself is continuously exacerbating the volatility of energy prices. Until safe and continuous navigation is established in the strait, all related prices—crude oil, natural gas, chemicals—will remain in a state of high uncertainty.

2. Central bank hawkish turn further expands volatility

Recently, major global central banks have simultaneously released hawkish signals. The Federal Reserve raised its inflation forecast for 2026, and Powell rarely acknowledged that discussions on interest rate hike scenarios have occurred internally, while last week, the previously dovish camp of the Bank of England all turned hawkish. Last week, the long-bond market experienced a massive shakeup. The reason central bank statements triggered such dramatic reactions is not only due to the hawkish signals themselves but also because they opened the door to “interest rate hikes,” which had been effectively closed by the market.

On March 25, ECB President Lagarde outlined the central bank’s logic of taking one step at a time:

1. The central bank cannot control oil prices themselves, but it cannot tolerate the spillover of oil price shocks into overall inflation.

2. Non-linear warning: The transmission of energy prices to inflation is not uniform. Small shocks can be absorbed by the market; however, once shocks exceed a certain threshold, inflation levels and expectations can jump significantly. The speed of transmission depends on whether demand is overheated, the labor market is tight, and whether the public still remembers the pain of 2022—which the answer clearly indicates: they do.

3. The central bank’s options are not simply “ignore” or “aggressively raise” but rather a sliding scale. Small and short-lived shocks can be ignored; however, if inflation significantly and persistently deviates from the target, a strong response is necessary—even if inflation expectations have not yet de-anchored, as long as oil prices rise sharply, the ECB may take action.

It is precisely this step-by-step approach from the central bank, in conjunction with the changes in asset pricing, that itself becomes another source of market volatility.

3. The real pain point has yet to arrive, perhaps gradually around mid-April

Currently, what the market is pricing in is mostly expected fear rather than a genuine pain at the physical level. In fact, inventory levels in most parts of the world have not changed much; the severe fluctuations are due to the interruption in the Strait of Hormuz and the inventory that is currently at sea.

This also suggests that the real pain point may only gradually emerge around mid-April—and that the scar effects of the supply chain will likely last much longer than the conflict itself.

The most direct evidence comes from shipping. Even if the strait were to announce a reopening tomorrow, the tankers stranded in the Persian Gulf would not immediately set sail—shipowners need to first see a continuous “zero attack” safety window over several days before daring to move. War risk premiums have skyrocketed from pre-conflict levels of 0.2%-0.4% to 1%-5%, with extreme quotes even reaching 10%, and the risk control models of insurance companies will not immediately adjust rates due to a ceasefire declaration. Adding to this are the friction costs caused by damaged port facilities leading to reduced loading and unloading capacity, the need to replan routes, and renegotiate contracts, meaning the entire shipping chain’s recovery will be a slow process measured in months or even quarters. A cautionary tale is the Red Sea crisis of 2024—one hundred days after the ceasefire was announced, tanker throughput only returned to half of previous levels, and shipping costs have yet to return to normal. The magnitude of the Strait of Hormuz far exceeds that of the Red Sea, and the recovery process will only be longer.

More concerning than the recovery of shipping is the physical destruction of infrastructure, as shutdowns in the production phase mean supply-side gaps will exist for years.

However, the perception of these two issues and how they reflect on prices will vary from person to person and depend on the level of pain experienced. Those truly engaged in physical trading and experiencing shortages—refining procurement, shipping scheduling, spot traders—their level of anxiety far exceeds that of financial market participants. We have observed that some institutions, due to overtrading from this anxiety, have temporarily fallen into significant losses. When the pain finally forms a narrative and transmits to pricing, the stock market’s reaction could very well be a cliff-like drop, which is also one of the risks that have yet to be priced in.

4. Watch more, act less

Summarizing the above clues, the conclusion is actually quite simple: watch more, act less. If you think recently that you can find opportunities to excel in the capital market from technical indicators or military predictions, you are likely to find none.

During times of multiple narratives running concurrently and high volatility, phenomena of gap openings and gap down movements will repeatedly occur, creating panic. On the other hand, the longer market volatility persists, the more likely it is to be overtaken by genuine growth panic—more positions that choose not to hedge will increase. However, there is a bottom line logic that can be anchored—perhaps the second half of the year or longer may not be so bad. Trump is unlikely to enter the second half with $150 oil prices, a recessionary economy, and a collapsing U.S. stock market; when high oil prices and low supply cause pain across global economies, a global policy coordination at a Marshall Plan level could also be brewing. For this reason, any unexpected escalation in the short term is actually nurturing a future unexpected downgrade. It’s better to observe more and act less than to act in haste.

However, amidst the chaos, some more certain clues are gradually emerging:

1. Extreme sell-offs often contain opportunities.

2. This war is irreversibly reshaping the global energy landscape, and the disruption of shipping in the Strait of Hormuz is forcing oil operators to reassess their supply chain layouts, with long-term reconfiguration of the energy landscape already beginning.

3. The expansion of the AI industry may temporarily slow down, but for the industry itself, a slower pace may not be a bad thing.

4. The restructuring of global supply chains continues to advance, and the alternative advantages of Chinese manufacturing are still accumulating.

On the evening of April 2, a discussion that has been brewing for 6 or 7 years will start, where I will systematically talk to you about AI, digitization, and digital wealth—along with the vaguely emerging new frontier.