WTI crude oil returns to $80: How the escalation of the Middle East situation reshapes expectations for crypto market liquidity?

On July 17, the WTI crude oil futures settlement price closed at $78.95 per barrel, and the Brent crude oil futures settlement price closed at $84.23 per barrel. Although the day’s close recorded a slight decline, the combined weekly gains of the two major benchmark oil prices are already approaching 12%, and WTI at one point surged above the $80 level intraday. The core driving force behind this sharp spike in oil prices is the escalation of the US-Iran conflict and Iran’s threat to block the Red Sea shipping route—energy transport through the Strait of Hormuz has fallen into chaos, and the Bab el-Mandeb strait could become the next energy artery to be cut off.

For the crypto market, the return of oil prices to $80 is far more significant than it is for the energy sector itself. Crude oil is one of the most important global inflation input variables, and its price trend profoundly affects the valuation logic of high-risk assets such as Bitcoin through the transmission chain of “oil prices → inflation expectations → monetary policy → risk-asset liquidity.” Against the backdrop of a just-better-than-expected drop in US inflation data in June, the geopolitics-driven rebound in energy prices is rekindling market concerns about sticky inflation.

After Hormuz, why has the Red Sea become the next storm eye

The fragile ceasefire agreement reached between the US and Iran in June has already broken down, and energy transport through the Strait of Hormuz has fallen into ongoing chaos. Before this, about one-fifth of the world’s daily oil and natural gas transportation needed to pass through the Strait of Hormuz. Iran’s Revolutionary Guard has stated clearly that the Strait of Hormuz will remain closed “until the end of America’s wrongdoing.”

But the real escalation is moving toward the Red Sea. According to Reuters, Iran has asked Yemen’s Houthi forces to prepare to blockade the Bab el-Mandeb strait. Three sources said Iran has conveyed this request to the Houthis, a group that has deployed missiles and drones in Yemen’s highlands and completed preparations for attacks on ships. A senior Houthi official warned on July 13 that if Saudi Arabia continues its attacks on Yemen, the group is prepared to close the Strait of Mandeb and said that this move could send oil prices soaring to $200 per barrel.

The Bab el-Mandeb strait connects the Red Sea and the Gulf of Aden and is a key passage for Saudi crude oil exports and a large volume of global maritime trade. According to Kpler data, in June, an average of about 7.4 million barrels of oil products were transported daily via the Bab el-Mandeb strait—about 7% of global oil production, far higher than last year’s 4.2 million barrels per day. More importantly, after disruptions in the Strait of Hormuz, a large volume of Persian Gulf oil is being diverted from Saudi pipelines to be exported through the Red Sea, and 70% of Saudi energy exports have been rerouted to the Red Sea port of Yanbu. This means that if the Bab el-Mandeb strait is simultaneously blocked, the two major Middle East energy export corridors would be paralyzed at the same time.

With two energy arteries blocked at once, how big is the supply shock?

The International Energy Agency (IEA) estimates that in 2025, about 20 million barrels per day of crude oil and oil products will pass through the Strait of Hormuz. The Bab el-Mandeb strait accounts for roughly 7% of global energy supply. Combined, the two corridors involve more than one-quarter of global oil trade volume.

The immediate impact of supply interruptions has already shown up in prices. This week, the two major benchmark oil prices have risen cumulatively by about 12%. Brent crude reached $85.28 per barrel at one point intraday on Friday, and WTI crude rose to $79.98 per barrel. Goldman Sachs expects that if the recovery of Gulf region exports continues to be delayed, Brent crude could rise to above $110 per barrel in the fourth quarter.

However, market pressure is coming not only from crude oil itself. Attacks by Ukraine on Russian refineries have led to a sharp reduction in Russia’s oil product exports, and Moscow has also banned diesel exports. Tightness in the US and Europe diesel and gasoline markets has risen to record highs. The tightness of refined product supply is even more severe than that of crude oil. This combination of multiple supply shocks gives the upside move in energy prices greater staying power and transmission strength than a single event would.

How rising oil prices reshape inflation expectations and the policy path

The transmission mechanism between oil prices and inflation is relatively direct and quantifiable. Higher crude oil prices flow through to transportation costs, manufacturing spending, logistics, aviation, shipping, agriculture, and consumers’ energy bills. These cost increases ultimately appear in CPI and PCE data weeks to months later.

US June CPI rose 3.5% year over year and fell 0.4% month over month, marking the first month-over-month decline in six years. The pullback in energy prices is a key factor driving this round of inflation cooling—during the period when progress was made on the US-Iran ceasefire in June, Brent crude fell by nearly 30%, dragging the US CPI energy component down sharply by 5.7% month over month. However, the sharp surge in oil prices since July is reversing this trend. Galaxy Securities predicts that in July, nominal CPI year-over-year will still remain around 3.5%, but if oil prices continue to stay at high levels, inflation expectations may rise again.

Federal Reserve officials are highly vigilant. Kansas City Fed President Schmid warned on July 16 that inflation may accelerate further in the coming months, which is his biggest concern. Fed Chair Waller also made clear at a congressional hearing that a decline in CPI in a single month is not enough to change the directional assessment of monetary policy. Disagreements within the Fed about the inflation path are intensifying, and the policy outlook depends heavily on the performance of subsequent data. CME’s “Fed Watch” shows that the probability the Fed keeps the benchmark interest rate unchanged in July is 88.8%, and the probability of a modest 25-basis-point hike is 11.2%. However, rate-hike expectations have not disappeared completely— the probability of cumulative 25-basis-point hikes by September is 46.2%.

From oil prices to Bitcoin: how the complete transmission chain works

As a high-beta risk asset, Bitcoin is extremely sensitive to marginal changes in liquidity expectations. Its transmission path can be broken down into four links:

First link: oil prices → inflation expectations. Crude oil is a foundational input for the global economy, and changes in its price can systematically affect inflation levels through channels such as energy costs, transportation costs, and manufacturing input prices. When WTI crude rose from $68.52 per barrel at the beginning of July to around $80, energy inflation pressure was rebuilding.

Second link: inflation expectations → monetary policy expectations. Rising inflation expectations weaken market bets on rate cuts and may even reignite expectations of rate hikes. After the June CPI data was released, the market’s probability of the Fed keeping rates unchanged in July rose from 58% to 84%; and with the sharp rally in oil prices in July, expectations for rate hikes have not fully faded.

Third link: monetary policy expectations → liquidity conditions. A high-interest-rate environment means yields on risk-free assets (such as US Treasuries and cash) remain elevated, which reduces the relative appeal of risk assets. A strong US dollar and high Treasury yields together squeeze liquidity for risk assets.

Fourth link: liquidity conditions → crypto asset valuations. Liquidity remains one of the main forces supporting crypto currency valuations. When liquidity expectations tighten, risk assets such as Bitcoin face valuation compression pressure. On July 17, Bitcoin was around $64,418, down 0.71% over 24 hours, about 1.5% lower than the three-week high it reached the previous day. Ethereum was $1,875.89, down 2.49%. After Bitcoin hit a one-month high near $65,500, it encountered profit-taking; part of the reason is that rising geopolitical risk has suppressed risk appetite.

In an energy-inflation environment, does the crypto market show resilience or fragility?

The crypto market currently faces a core contradiction: the narrative of inflation cooling and the geopolitical-driven energy inflation are both unfolding at the same time.

On the positive side, Bitcoin has shown some resilience amid this oil-price shock. On July 8, when WTI crude rose more than 5% to $72.87, Bitcoin was under short-term pressure but did not experience a crash-like decline. Some analysts believe that if oil prices continue to hold above $80 per barrel, they could support Bitcoin’s price in the $65,000 to $72,000 range.

However, resilience and immunity are two different things. If oil prices break above $100 per barrel, the accompanying inflation pressure could lead the Fed to tighten further, creating substantial headwinds for risk assets, including cryptocurrencies. The total market value of stablecoins has shrunk by $10 billion since May, indicating that funds are flowing out from the crypto ecosystem.

Even more worth attention is the split in market expectations. After the June CPI data was released, crypto assets rose briefly, but then retreated under the combined pressure of profit-taking and geopolitical tensions. This “good news priced in” pattern suggests that the market is re-evaluating the long-term impact of rising energy prices on macro policy, rather than merely reacting to a single data point.

Summary

WTI returning to $80 is not just a standalone energy-market event. The ongoing blockade of the Strait of Hormuz and the potential closure of the Bab el-Mandeb strait together form a systemic shock to global energy supply. Through the complete transmission chain of “oil prices → inflation expectations → monetary policy → risk-asset liquidity,” this shock is reshaping the macro pricing environment for the crypto market.

The inflation-cooling narrative brought by the June CPI data is being challenged by July’s geopolitical energy shock. The Federal Reserve’s high-interest-rate stance may last longer than the market previously expected. For the crypto market, this means that any improvement in the liquidity environment may take longer to materialize. Bitcoin’s choppy trading around the $64,000 level reflects the market’s repricing of this macro uncertainty.

In the coming weeks, oil prices, the evolution of the Middle East situation, and the Fed’s policy communication will jointly determine the direction of global risk assets. Understanding the transmission logic between energy prices and the crypto market is more meaningful than simply forecasting short-term price moves.

FAQ

Q: Why did WTI crude oil rise sharply in July?

The main drivers are the escalation of the US-Iran conflict and Iran’s threat to block the Red Sea shipping route. Energy transport through the Strait of Hormuz has fallen into chaos, and Iran has also asked the Houthis to prepare to blockade the Bab el-Mandeb strait. With both major energy corridors facing disruption risk at the same time, oil prices have risen cumulatively by about 12% this week.

Q: How does a rise in oil prices affect Bitcoin prices?

Through the transmission chain of “oil prices → inflation expectations → monetary policy → risk-asset liquidity.” Higher oil prices raise inflation expectations and may strengthen the logic for the Fed to keep interest rates high or even raise them, thereby reducing liquidity flowing into risk assets and creating pressure on crypto assets such as Bitcoin.

Q: Will the Federal Reserve raise rates in July?

CME’s “Fed Watch” shows that the probability the Fed keeps the benchmark interest rate unchanged in July is 88.8%, and the probability of a modest 25-basis-point hike is 11.2%. The market generally expects it to stay put in July, but uncertainty about the inflation outlook means there are still variations in the subsequent policy path.

Q: How much impact does a Red Sea blockade have on global energy supply?

The Bab el-Mandeb strait transports about 7.4 million barrels of oil products per day, accounting for about 7% of global oil production. With the Strait of Hormuz already disrupted, 70% of Saudi energy exports have been rerouted to the Red Sea. If the Red Sea is blockaded at the same time, the two major Middle East energy export corridors would be paralyzed simultaneously.

Q: What indicators should the crypto market focus on in the current environment?

Focus on: the price trend of WTI and Brent crude, US CPI and PCE inflation data, Fed rate expectations (CME “Fed Watch” data), US Treasury yields and the US dollar index, and the latest developments in the Middle East situation. These indicators together form the core monitoring framework for the crypto market’s macro environment.