The clock is ticking: why markets cannot afford to shrug off the Strait of Hormuz

Brent crude is sitting around US$100 a barrel, up nearly 40 per cent from pre-war levels. Distillate prices, including diesel and jet fuel, are up 60 per cent or more. The Strait of Hormuz remains effectively closed. Physical stocks of crude oil, liquefied natural gas, and distillates could be depleted in parts of Asia and Europe within months.

And yet global equity markets have rebounded sharply in the last quarter of the year with a composure that has left many observers unsettled.

Stephen Dover, chief market strategist and head of Franklin Templeton Institute, captures the disconnect plainly. “Markets appear to be shrugging their collective shoulders,” he says. “What’s going on? Are markets complacent with the risks identified by our clients and our group CIOs? Or are there fundamental reasons behind the markets’ recoveries?”

It is a question worth taking seriously. The answer, Dover argues, is more complex than either the bulls or the bears are allowing.

Growth will be hit, but the offsets are real

The starting point is honest. Global growth will likely be impacted. The International Monetary Fund and various private sector research groups have trimmed their 2026 real GDP forecasts this month, with Europe and Asia absorbing some of the biggest downgrades. The transmission from an energy shock of this magnitude to economic activity is not subtle.

“Over the past few weeks global equity markets have rebounded sharply, overcoming their war-related setbacks in March. Credit spreads, the euro and other asset prices have also snapped back.”

But Dover is careful not to treat the impact as unidirectional. In the United States, Europe and Japan, fiscal expansion should ease some of the pain. In the US specifically, higher-income households, which account for over half of consumption, could see purchasing power supported by tax refunds and wealth gains. The top 20 per cent of US households by income are responsible for 60 per cent of all consumer spending, which means the resilience of that cohort matters more than aggregate headline numbers suggest.

The longer-term structural tailwind also remains intact. Global capital expenditure momentum behind artificial intelligence, energy infrastructure and supply chain management offers the US and world economies a powerful set of offsets that do not disappear because oil prices have risen.

Why the US is proving more resilient than the headlines suggest

Dover’s most important structural argument concerns US productivity. After averaging 1.3 per cent annual growth from 2010 to 2019, US non-farm labour productivity has accelerated to 2.5 per cent over the past two years. That acceleration, driven largely by the rapid diffusion of new technologies and above all AI, is making the US economy stronger and more resistant to external shocks than it was in previous energy crises.

The energy picture reinforces that resilience. Since the late 1970s, energy consumption per capita in the United States has fallen by 20 per cent, while rising domestic production has turned the country from a hydrocarbon importer to an exporter. The economy has become structurally less sensitive to energy price shocks than at any point in the post-war era. That does not make the current disruption irrelevant, but it does change its magnitude.

Central banks, earnings and the psychology of not selling

On monetary policy, Dover expects caution rather than aggression. One-time price increases stemming from energy supply shocks typically fade, and some slowing of growth is likely. Central banks will be reluctant to raise interest rates aggressively in that environment. Where rate hikes are most probable, in Europe and Japan, markets have already discounted the move.

Corporate earnings are providing a more direct source of support. Throughout the first quarter of 2026, analysts were busy upgrading already-robust profit estimates even as the war commenced. Information technology, financials and energy have seen the biggest upward revisions. After the first two weeks of the earnings season, beats remain healthy and S&P 500 earnings per share are tracking 15 per cent higher year on year. That is not a fragile foundation.

There is also a psychological dimension Dover does not shy away from. Investors remember the pain of selling aggressively following the Liberation Day tariffs of 2025, only to see a sharp policy and market reversal. Subdued selling during the current conflict partly reflects the concern that sellers could be caught offside by quick turns in politics or diplomacy.

As remote as an agreement to open the Strait of Hormuz may seem today, being overly pessimistic carries its own risks. That uncertainty dynamic has kept volatility and selling pressure lower than the scale of the shipping disruption might otherwise warrant.

The stalemate that cannot hold

Dover’s conclusion is measured, but it is not comforting. The status quo is unsustainable. Restricted supplies of energy and petrochemicals caused by the closed Strait of Hormuz will eventually produce acute economic pain. The clock is ticking.

What markets are pricing, in his view, is a near-term stalemate of competing forces, not a resolution. Strong corporate earnings, US economic momentum and investor conditioning toward restraint are holding the line. But sustained stability can only arrive via a durable resolution of the conflict, one that permits a credible and lasting reopening of one of the world’s most vital waterways.

Until that happens, Dover’s message to investors is direct. With the US equity market flirting with fresh all-time highs, this is precisely the wrong moment to let the market’s recent composure become your own. The fundamentals remain intact. The risk has not gone away.