• The centre of the war has shifted from strikes to legal control of the strait. Iran is negotiating a temporary shipping route bilaterally with Oman while refusing direct talks with Washington, banking a navigational precedent without conceding anything to the United States.

• Six separate strategies to route around the Strait of Hormuz are now under construction across the region, from Emirati east-coast ports to a revived Iraq-Syria pipeline. None of them removes the underlying vulnerability, reinforced by the recent Houthi blockade of the Red Sea which has opened a second chokepoint.

• Asian liquefied natural gas buyers are splitting into two classes. Those with diversified, non-Gulf supply absorb the shock. Those dependent on Hormuz transit are rationing supply, shutting fertiliser plants and switching fuels, and the divide is reshaping the next decade of energy contracting.

• Washington is paying for regional alignment in advanced chips and nuclear cooperation, while a new Saudi-Turkey-Pakistan defence pact signals that Gulf states no longer trust American deterrence to hold.

• The oil shock is now a monetary problem. A refining shortage has decoupled fuel prices from crude, feeding US inflation and straining the Federal Reserve’s credibility as a divided committee resists the rate rise markets now expect.

Context

Nearly six months ago the United States and Iran went to war, and the Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil and gas passes, became the central battleground. A ceasefire signed in April failed. A memorandum meant to reopen the strait toll-free in June collapsed within weeks when Iran began attacking ships it deemed to be using an unauthorised route. Since then the fighting has settled into a grinding rhythm of strikes and counter-strikes, but the real contest has moved somewhere less visible.

Iran no longer expects to control the strait by force alone. Instead it is contesting the legal regime that governs passage through it - who authorises transit, on what route and at what cost. That kind of leverage is harder to see and dislodge than military might.

For businesses, the practical questions have changed accordingly. This is no longer only about whether oil flows. It is about who sets the terms when it does, how much rerouting around the chokepoint actually costs and whether the alternatives being built at speed are any safer than the route they replace. The answers are beginning to take shape.

Energy Security and Supply Chain Exposure

The closure of Hormuz has sorted the world’s energy buyers into those who prepared and those who did not, and the gap between them now decides who rides out the disruption and who is forced to ration.

Nowhere is this clearer than in liquefied natural gas (LNG). Asian demand is heading for a second consecutive annual decline, falling to 257 million tonnes in 2026 from 268 million the year before. The headline figure conceals a sharp divergence. Japan, whose term contracts cover more than 90 per cent of its needs from suppliers largely outside the Gulf, is insulated from the price spikes. China entered the crisis with the region’s deepest inventory and the most diversified supply base. Both can weather a shock that is proving punishing elsewhere.

South Asia is absorbing something closer to a genuine crisis. India faces the largest single exposure by volume, and the response has been to divert gas to essential sectors while urea production is squeezed and energy-intensive industries switch to propane, fuel oil and naphtha. Pakistan, absent from the spot market for two years, has been forced back into it. Price is doing the rationing directly, now high enough to force fertiliser shutdowns and power cuts.

South Korea’s KOGAS holds contracts tied to a Qatari facility damaged in Iranian missile strikes, with supply potentially interrupted for years. Qatar, having tried to restart the world’s largest LNG plant after an earlier shutdown, has paused the effort as renewed fighting closed the strait again. China’s imports of Qatari gas between April and June collapsed to around 100,000 tonnes, from 4.7 million tonnes over the same period a year earlier - a near-total stop in one of the industry’s largest supply relationships.

That collapse is not only wartime disruption. China’s state buyers are now in talks to secure supply for the next decade from sources that never touch the Gulf, with Canada among those under consideration. The war has converted a temporary rerouting problem into a lasting diversification of its supply base.

The same decoupling is visible in oil. A global shortage of refining capacity has driven the premium of diesel over crude to roughly $70 a barrel, more than triple the usual premium of approximately $20. The cause is a compounding of crises: Gulf refineries cut off by the blockade, Ukrainian drone strikes on Russian refining capacity and Chinese restrictions on product exports, all at once. Refiners can prioritise whichever fuel commands the best margin, but that is a way of managing scarcity, not ending it.

Outlook

The structural winners are already clear. US Gulf Coast refiners are posting record margins, and Exxon and Chevron together reported second-quarter profits of $26.5 billion, driven substantially by their refining arms. Expect that windfall to accelerate consolidation and delay the retirement of ageing refining assets across the Atlantic basin, precisely the opposite of the transition trajectory most boards had priced in.

The more consequential shift is in gas contracting. The buyers now signing decade-long deals to avoid the Gulf, China among them, are removing baseload demand from Qatari and Emirati supply for years to come. Qatar’s expansion strategy was built on the assumption of durable Asian offtake. That assumption is now under serious pressure, and the loser is not a wartime cargo but the long-run economics of Gulf gas itself. Producers in Canada, the United States and East Africa stand to capture contracts that would have been unavailable in a stable market. For any business with energy-intensive operations in South Asia, spot price exposure can now halt production outright, and supply secured outside the chokepoint is worth its premium before the next closure.

Trade and Investment Architecture

Faced with a chokepoint they cannot reopen, governments and companies across the region have reached the same conclusion at once: build around it. Six distinct strategies are now under construction, and the scale of capital behind them shows how permanent the disruption is expected to be.

The most visible is happening on the United Arab Emirates’ east coast. DP World is developing new port capacity at Fujairah, on the Gulf of Oman, allowing containers to enter and leave the country without passing through the strait before moving overland to Dubai and Abu Dhabi. Activity at its flagship Jebel Ali hub fell by more than 90 per cent after the closure, and the state oil company is building a second pipeline to double crude export capacity to Fujairah by 2027. On its face this is straightforward risk avoidance.

It is worth being precise about what it does and does not achieve. Fujairah bypasses the strait, but it does not escape Iran. Iran has launched nearly 3,000 drones and missiles at the Emirates, more than any other nation, and a site on the Gulf of Oman coast is no less exposed than one behind the strait. As one Dubai-based consultant noted, a cargo leaving Fujairah remains squarely within reach of Iranian fire.

The more durable logic is competitive rather than defensive. Oman’s east-facing ports at Duqm, Sohar and Salalah already offer the region a natural gateway outside Hormuz. The Emirati build-out is best understood as a bid to ensure that when the war ends, regional logistics primacy is not ceded to Muscat by default - a contest for post-war market share dressed as wartime prudence.

The other strategies span commodities and geographies. A US-led consortium including Chevron is reviving the long-dormant Kirkuk-Baniyas pipeline to carry Iraqi crude overland to the Syrian Mediterranean, with an initial capacity of two million barrels a day. For Iraq the stakes are existential. With oil supplying roughly 90 per cent of state revenue, the closure cut exports to under a third of normal levels, draining an estimated $128 million a day from Baghdad. The government ran a $5 billion budget deficit within four months, turning a maritime bottleneck into a fiscal emergency.

Saudi Arabia and Turkey are reviving the Ottoman-era Hejaz Railway to link the Gulf to the Mediterranean via Jordan and Syria. A US-Saudi consortium is planning a $5 billion greenfield refinery sited, by design, outside the strait. And the reconstruction of Syria, Lebanon and Gaza, carrying a combined price tag above a quarter of a trillion dollars, has become a contest to own the ports, grids and airports that will define the region’s economic corridors for decades.

History is instructive here. After the 2003 invasion of Iraq, Chinese state firms moved quickly into the oil sector while Western companies hesitated, and by 2014 Chinese producers were responsible for over half of Iraqi output. The reconstruction contracts being signed now in Damascus and Beirut carry the same lesson: in post-conflict markets, the party that commits capital first sets the terms that outlast the fighting.

Outlook

The critical distinction for any business assessing these corridors is between bypassing a chokepoint and removing the vulnerability. None of the six does the latter. The pipeline through Syria trades maritime risk for the security of a route running through recently contested territory. The Fujairah ports trade transit exposure for a facility within missile range. This is redundancy, not immunity, and it should be priced as such.

The reconstruction race is where the largest structural repositioning is underway. Qatar and Turkey have already locked in thirty-year energy and airport concessions in Syria that will shape the flow of goods and power long after the current leadership is gone. For Western firms, the window is narrowing: legal permission to enter Syria now exists, but commercial hesitation is ceding ground to Gulf and Turkish capital that moves faster and tolerates more risk. The corridors being built this year will determine which capitals hold leverage over regional trade for a generation, and the companies embedded in them early will inherit that leverage. Those waiting for stability before committing will find the concessions already signed.

Political Instability and Regional Security

The most important development of the war is the ongoing dialogue with Oman. Having failed to reopen the strait on its own terms, Iran has changed tack. It is now negotiating a temporary shipping route bilaterally with Oman, and the two have reportedly agreed the geographical coordinates for a new passage pending a formal replacement for the pre-war traffic system. This matters more than the strike exchanges that dominate the headlines. Iran is not fighting to physically hold the waterway; it is contesting the legal regime that governs it - who authorises passage and on what route. A negotiation with Muscat over a new traffic scheme is where the fate of the strait is now being decided.

By dealing through Oman while refusing direct talks with Washington, Tehran secures a navigational precedent without conceding anything to the United States. Oman’s role here is distinctive and deliberate. It sits outside both the Saudi-led maritime coalition protecting Red Sea shipping and the emerging Gulf security blocs, consistent with its long-standing neutrality and its role as the region’s indispensable mediator, rather than a party to any camp. Muscat’s posture is cooperative and service-oriented, closer to the voluntary model that governs the Strait of Malacca than to any compulsory toll levied jointly with Iran. That distinction will matter enormously to shipowners once a route reopens.

Reopening, however, remains conditional. Iran has hardened its terms, demanding US compensation for war damage, sanctions relief and a withdrawal of American forces before the strait fully reopens - conditions separate from, and larger than, the Oman route agreement itself. The internal Iranian politics are unsettled: the reformist president has openly advocated a deal, while the Revolutionary Guards describe the strait as a component of national strategic power, not merely an economic asset. A recent reshuffle of Iran’s Supreme National Security Council, which must approve any agreement, has installed Mohsen Rezaei, a veteran hardliner and mentor to the supreme leader, as its secretary. A former Revolutionary Guards commander who opposed even extending the April ceasefire, Rezaei is read by analysts as a sign that Tehran is consolidating around its hardliners and that any negotiation will get tougher, not easier.

While the strait consumes attention, a second front has reopened. The Houthis have declared a blockade of the Red Sea, struck Saudi tankers and forced Saudi-operated vessels to divert around Africa. This was not improvised. Iran positioned the Houthi threat as deliberate leverage, holding open the option to close the Bab el Mandeb strait entirely. Simultaneously the Houthis have turned inward, striking Yemeni government forces for the first time in years and raising the prospect of a full return to civil war centred on the oil regions of Marib. The lesson for the region is unwelcome: every route built to bypass one chokepoint can be threatened at another.

Outlook

The security architecture of the Gulf is being redrawn on the assumption that American protection can no longer be relied upon. The new Saudi-Turkey-Pakistan mutual defence pact, which treats an attack on one as an attack on all, is the clearest expression of that judgement, and it is likely to widen. Egypt is the named candidate to join next, though Cairo will resist any commitment that could pull its forces into another state’s war. Expect a patchwork of overlapping, non-binding alignments rather than a single bloc, with the Sultanate maintaining its independent neutrality.

For businesses, the operational risk is no longer confined to the strait. The reactivation of Yemen’s civil war puts onshore oil and gas infrastructure at Marib directly in play, and the Houthi capacity to threaten both the Red Sea and Saudi territory means the southern flank of the Arabian Peninsula is now a live theatre. Any continuity plan that treats Hormuz as the single point of failure is already out of date. The more accurate model is a region with multiple, simultaneously contested corridors, in which the reopening of one does nothing to secure the others.

US-China Strategic Competition

The war has become an arena in which Washington and Beijing are competing for regional alignment, and the currency of that competition is technology and arms.

Washington’s approach is to reward alignment directly. It has upgraded the United Arab Emirates to a status permitting license-free access to advanced American chips, allowing the import of up to 500,000 advanced artificial intelligence processors a year, explicitly citing Abu Dhabi’s role as a security partner during the war. The two have stood up a joint military AI task force, the first such arrangement between Washington and a Gulf state. In parallel, the United States has signed a nuclear cooperation agreement with Saudi Arabia that notably lacks the safeguards barring uranium enrichment contained in comparable deals, including the Emirati one. Read together, the chip upgrade and the nuclear agreement describe a coherent post-war strategy: American technology offered as the reward for choosing Washington’s side.

Beijing’s hand is harder to read, because it is playing more than one. China is publicly positioning itself as a promoter of peace while, according to reporting Beijing flatly denies, preparing to supply Iran with up to 400 shoulder-fired air-defence missile systems through a Hong Kong intermediary and a transit route via Pakistan. If accurate, this places Chinese hardware on the Iranian side as Chinese buyers pull their own gas supply out of the Gulf. Beijing is positioning to win whichever way Hormuz goes. Its Iran ties secure preferential passage through a strait that stays contested for everyone else, while its decade-long contracts for non-Gulf supply insulate it if the disruption drags on. Arming Iran and diversifying supply are two halves of the same hedge.

The same logic is visible at sea. A Chinese carrier has just launched the first scheduled container run through the Arctic, halving the sailing time to Europe while avoiding the Red Sea and the Gulf entirely. Chokepoint by chokepoint, Beijing is building the option to route around the region altogether.

The nuclear dimension carries the longest shadow. The Saudi crown prince has said plainly that if Iran acquires a weapon, the Kingdom will follow. A US-enabled Saudi enrichment capability, absent the usual inspection regime, lowers the threshold for exactly that outcome.

Outlook

The immediate commercial consequence is that Gulf states are being drawn into the US technology bloc on terms that will constrain their future options. The Emirati chip access comes with an implicit expectation of alignment on export controls and data governance that will complicate any parallel commercial relationship with China. Companies operating in the Gulf’s fast-growing AI and data-centre sector should expect to navigate an increasingly binary choice between American and Chinese technology stacks, with less room to hedge than the region’s leaders would prefer.

The deeper risk is proliferation. A Saudi enrichment programme without inspections, arriving in a region already at war and absent a settled security guarantee, is the kind of structural shift that reprices sovereign and infrastructure risk across the entire Gulf. If Riyadh moves toward a weapons capability and others follow, the insurance, financing and investment-screening implications will extend far beyond energy, touching every asset class exposed to the region. This is a low-probability, high-consequence path, but the deal signed this month has made it materially more plausible than it was a year ago.

The Deal That Reopens the Strait but Not the Peace

The primary scenario tested in this edition of Shifting Sands is a grinding continuation: a temporary Oman-brokered route that eases the worst of the disruption without resolving the war, leaving businesses to operate in a state of managed instability for a year or more.

There is a genuinely plausible alternative that differs sharply in its commercial implications. In this path, Iran and Oman conclude their route agreement within weeks, and it succeeds well enough to revive the collapsed June memorandum and restart talks on a final settlement. The strait reopens more fully than expected. Crude and product prices fall back toward pre-war levels, the refining premium narrows and the immediate inflationary pressure on the United States eases in time to matter politically.

This is not the optimistic fantasy it first appears, because its second-order effects are double-edged. A functioning Iran-Oman traffic scheme would establish, as durable precedent, that passage through Hormuz is a negotiated privilege rather than a guaranteed right under freedom of navigation. That precedent outlasts the war. Maritime finance and risk would thereafter price Hormuz transit as a political arrangement, contingent and open to renegotiation. The immediate relief would be real, but the long-run cost of capital for anything dependent on the strait would rise, not fall.

The businesses that would benefit most are those that have already committed to the bypass infrastructure, the ports, pipelines and refineries being built this year, because a reopened strait does not strand those assets so much as add a second, cheaper option alongside them. The losers would be those who deferred all adaptation on the assumption that reopening meant a return to the pre-war status quo. It will not. The rules will have changed even if the route is the same.

Acting Before the Next Closure

The central mistake available to any business right now is to treat a reopening of the strait as a return to normal. It will not be. Whatever route emerges from the Oman talks will carry a political premium that did not exist before the war, and the smart response is to price that premium in now rather than wait for it to be demonstrated.

Two priorities follow. For operational leaders, the single point of failure has multiplied: any continuity plan built around Hormuz alone is obsolete, because the Red Sea, the Yemeni oil regions and the Gulf’s energy infrastructure are now simultaneously exposed. Map the second and third chokepoints, not just the first. For investors and treasurers, exposure to the chokepoint has become the decisive variable - the firms rationing production in South Asia are those who assumed Gulf supply would always arrive, and the premium for secured supply and diversified routing is now demonstrably worth paying.

The corridors, alliances and supply contracts being locked in during these months will define who holds leverage over regional commerce for a generation. For the commercial world, the question is no longer whether the strait reopens but whether businesses accept that its passage will be subject to ongoing renegotiation.

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References

Maoping Hu, Principal Analyst for Gas and LNG at Wood Mackenzie, quoted in Wood Mackenzie: ‘Asian LNG demand forecast to decline for a second consecutive year,’ 13 July 2026.

Bloomberg: ‘China Looks to Curb Dependence on Qatar for Future LNG Supply,’ 17 July 2026.

Financial Times: ‘Refining crunch keeps fuel prices high as crude retreats,’ 30 July 2026.

Lars Jensen, Chief Executive of Vespucci Maritime, quoted in Financial Times: ‘Dubai plans new port to bypass Strait of Hormuz,’ 13 July 2026.

Reuters and The Associated Press: ‘Iraq signs deals with Western oil firms, including to revive Syria pipeline,’ Al Jazeera, 17 July 2026.

Reuters: ‘US-Saudi consortium advances plans for $5 billion Gulf refinery,’ 29 July 2026.

Eitan Danon and Josh Kram. The National Interest: ‘To Understand the Middle East’s Future, Follow the Cranes,’ 27 July 2026.

Eitan Danon and Josh Kram. Riyalpolitik: ‘The Riyalpolitik 5,’ 30 July 2026.

Abbas Araghchi, Foreign Minister of Iran, quoted in Financial Times: ‘Tehran says US must meet new conditions before Iran reopens strait,’ 8 August 2026.

Sanam Vakil, Chatham House, quoted in Financial Times: ‘Tehran says US must meet new conditions before Iran reopens strait,’ 8 August 2026.

Financial Times: ‘Iran’s supreme leader tightens grip with top appointments,’ 10 August 2026.

Financial Times: ‘Saudi Arabia announces maritime defence coalition as Houthi attacks threaten Red Sea route,’ 30 July 2026.

Ahmed Nagi, Senior Analyst at the International Crisis Group, quoted in Al Jazeera: ‘Houthi attacks on gov’t forces hint that a major battle in Yemen is brewing,’ 7 August 2026.

Burcu Ozcelik, Senior Fellow at the Royal United Services Institute, quoted in Financial Times: ‘Saudi Arabia, Turkey and Pakistan sign defence pact in Mecca,’ 7 August 2026.

Karim Elgendy, Associate Fellow at Chatham House, quoted in Al Jazeera: ‘Which other countries could join the Turkiye-Saudi-Pakistan defence pact?,’ 9 August 2026.

Financial Times: ‘US and Saudi Arabia agree landmark nuclear energy pact,’ 22 July 2026.

Reuters: ‘Iran to get Chinese shoulder-launched missile systems in weeks, sources say,’ 29 July 2026.

• A memorandum signed on 17 June was meant to restore pre-war shipping volumes within thirty days. Instead the strait is closed again, Iran has struck US bases the length of the Gulf, and Washington has answered with a series of intense strikes, more than three hundred targets in three days.

• Iran has emerged from the war not broken but remade. Washington reads its refusal to compromise as ideological rigidity from a fractured leadership. The evidence points the other way: a confident, technocratic new generation pursuing a coherent strategic doctrine, not clinging to dogma.

• The clearest signal of the coming realignment came from Beijing, where Iran’s ambassador promised “special considerations” on strait fees for friendly nations. The reordering of who pays what to move energy through the Gulf has begun, and it does not favour the West.

• The gap between managed negotiation and open war has never been this narrow. A third round of strikes, a formal closure and missile exchanges reaching five Gulf states brought both sides closer to full military resumption than at any point since the ceasefire began.

Context

As this edition goes out, the Strait of Hormuz is closed and American and Iranian forces are exchanging fire across the Gulf. It was not supposed to end this way. In late February 2026 the United States and Israel launched a war on Iran intended to break the Islamic Republic. It did not. After roughly four months of fighting, thousands of missiles and drones, and the effective closure of the world’s busiest energy waterway, the two sides signed a memorandum of understanding on 17 June extending an earlier ceasefire for sixty days and committing to reopen the Strait of Hormuz.

About a fifth of the world’s oil and liquefied natural gas passed through that strait before the war. Its closure sent freight rates and energy prices soaring, forced Asian economies onto an emergency footing and stranded well over a thousand cargo ships. The agreement was meant to end all that.

It has not held. The strait is closed once more, Iran has struck US facilities across the Gulf, and Washington has answered in kind, while the central questions of the war, who controls the strait, whether Iran may charge for passage and what Tehran’s nuclear programme will look like, remain unresolved. For businesses, the tension is no longer whether a deal exists. It is whether any paper deal can be relied on to hold, given how quickly this one collapsed back into conflict.

Energy Security & Supply Chain Exposure

The single most important fact for any business dependent on Gulf energy is that the reopening of the Strait of Hormuz is not an event but a process, and the process is measured in months, not weeks. Markets have struggled to absorb this. When President Trump declared the strait open in mid-June, oil fell hard, with Brent futures dropping from a war peak of $118 a barrel to below their pre-war level. The renewed strikes of early July then pushed prices back above $80, a reminder that the early relief was a mood, not a settled repricing. Yet the physical reality on the water bears almost no relation to that price signal.

Consider the mechanics. Before ships can move freely, mines must be cleared. Iran is estimated to have laid around eighty of them in the waterway’s main lanes, and the type matters enormously. Seabed mines with magnetic or pressure sensors are far harder to find and destroy than crude contact devices, and until the central channel is confirmed clear, only two narrow corridors remain usable, one hugging the Iranian coast and one close to Oman. The head of Japan’s NYK Line, which runs more than nine hundred vessels, has warned that traffic will settle below half its normal level for months even if the peace holds, simply because so few safe lanes remain.

The problem compounds. The region’s storage tanks are full, which is itself the bottleneck: production cannot restart until there is room to hold new crude, and the only way to make room is to load the backlog onto ships. That makes the pace at which empty tankers arrive to be filled, not the sight of laden ones leaving, the true measure of recovery. Roughly ten thousand of the region’s thirty-six thousand pre-war wells sit offline, the oldest of them depressurised or corroded, which is why Morgan Stanley expects only half of Gulf output back by September and eighty per cent by December. That projected recovery in production is not the same as ships returning to the water, where traffic was already falling week on week before the latest closure shut the strait altogether. The scale of the hole is easier to grasp in barrels: Shell’s chief executive puts the accumulated shortfall at 1.2 billion and rising, perhaps reaching two billion by year end even if the strait stays open.

History offers a sobering parallel here. When Houthi attacks disrupted the Red Sea in 2023, a deal to stop the firing did not restore traffic. More than a year later, transits through that waterway remained down by half. Confidence, once broken, does not return on the schedule that a signed document implies. War-risk insurance for Hormuz transits is still quoted at around 7.5 per cent of a vessel’s value, a premium of millions of dollars a week for a single tanker, and underwriters have barely moved in response to the agreement. The judgement of the London market, not the language of the memorandum, will determine when the strait is genuinely open.

The deeper vulnerability, however, is not the strait itself but the buffers that would normally cushion its loss. American strategic petroleum reserves sit at a forty-three-year low, drawn down before the war and further depleted during it. That means the system now has far less slack than usual to absorb the next shock, and the next shock is not hypothetical. Qatar’s Ras Laffan liquefied natural gas complex, damaged in the fighting, has parts that will take three to five years to repair, setting back the entire anticipated global wave of new LNG supply by at least two years. For any manufacturer, utility or trading house that assumed cheap Gulf gas would bridge the energy transition, that assumption is now void.

Outlook

The commercially significant point is not that recovery is slow but that the market is systematically underpricing the fragility of what comes after. A strait operating at half capacity with a depleted global buffer is not a functioning system that happens to be running below par. It is a system in which any further disruption, an unexpected refinery outage, a fresh attack, a mine that was missed, lands with far greater force than it would have before the war. Expect volatility, not a smooth glide back to normal, to define energy costs into 2027.

Operational leaders should treat the coming twelve to eighteen months as a period of structurally higher energy-price variance and build inventory and hedging policy around that, not around headline spot prices that reflect diplomatic mood more than physical supply. The freight forwarders offer the most useful signal: bookings into the Gulf remain fifty per cent down, and the industry’s own leaders expect a return to Hormuz primacy eventually, since no overland route can carry the same load, but not soon. The winners will be LNG producers outside the Gulf, with Malaysia, Nigeria and the United States positioned to capture the supply gap Qatar cannot fill, and the losers will be import-dependent Asian economies that priced their transition plans on a Qatari supply wave that is now delayed by years.

Trade & Investment Architecture

The war has done something more durable than disrupt trade flows. It has forced a permanent recalculation of how much redundancy the global trading system is willing to pay for, and that recalculation is now reshaping capital allocation across the Gulf and beyond.

During the closure, goods that once moved by sea were pushed onto land, and the limits of that substitution became brutally clear. Two containers fit on a lorry; a large ship carries twenty thousand. Overland haulage costs rose roughly a quarter as demand for trucks surged, with queues stretching for miles at crossings such as the one between Oman and the United Arab Emirates. The chief executive of Kuehne+Nagel, the world’s largest freight forwarder, was blunt that hauling goods overland could never be a lasting substitute. The arithmetic simply does not work.

This matters because it bounds the most seductive narrative of the war, that the Gulf can simply route around Hormuz. It cannot, not at the scale that matters. What it can do, and is now doing, is build permanent insurance. The distinction is everything for anyone allocating capital. When the French container line CMA-CGM signed a deal to co-develop a $400 million logistics facility at the Omani port of Sohar, and when construction advanced on a rail line linking Oman to the UAE, these were not bets that Hormuz would be abandoned. They were assessments that no serious operator will ever again route through a single chokepoint without a fallback. As one leading freight analyst put it, container routes into the Gulf will not be a “carbon copy” of what they were, because companies will now accept longer transit times to shield their routes against the next closure.

The redundancy premium extends into infrastructure that most executives never think about until it fails. Beneath the strait run several of the subsea cables that carry the region’s data, and the war has frozen the projects meant to expand them. Every planned cable through Hormuz and the Gulf has been delayed indefinitely, the ocean floor must be surveyed and demined before work resumes, and insurers have imposed the same pause on cable-laying that they have on shipping. The consequence reaches directly into the Gulf’s economic strategy. Saudi Arabia and the UAE have staked their post-oil futures on becoming hubs for cloud computing and artificial intelligence, ambitions that depend on exactly the connectivity this war has called into question. A chokepoint once measured only in barrels is now seen as a point of digital weakness too, and that reputation will not fade at the speed of a ceasefire.

There is a second-order effect already visible in Asia. The displacement of some 350,000 shipping containers, stranded around Gulf and Indian ports while Asian demand climbs ahead of a fresh round of US tariffs, has created a scarcity of the steel boxes that global trade runs on. A regional disruption in the Gulf is now a container shortage in Shanghai. That is the texture of a genuinely interconnected system under stress, and it rewards the firms that looked past their direct suppliers to see who supplies their suppliers, while punishing those that never asked.

Outlook

The lasting commercial consequence is a structural shift in the cost of resilience. For two decades, efficiency and just-in-time logistics rewarded the removal of redundancy. That logic has now inverted for any supply chain touching the Gulf, and the firms that adapt fastest will treat multi-modal routing and dual-sourcing not as a cost centre but as a competitive advantage in a region where single points of failure have just been demonstrated to fail. Expect insurers and lenders to begin pricing chokepoint exposure directly into terms, which will quietly reshape which projects get financed.

Oman is the specific beneficiary worth watching, not as a replacement for Hormuz but as the region’s emerging redundancy layer, though the strikes on Duqm this week are a reminder that even the fallback now carries security risk. For investors, the opportunity is less in the marquee Gulf megaprojects than in the unglamorous connective tissue, ports, rail, storage and cable, that the war has revealed to be strategically essential and dangerously thin. The digital-infrastructure gap in particular represents a multi-year investment horizon that the Gulf’s diversification plans cannot succeed without.

US-China Strategic Competition

The most consequential realignment of the war was not announced in Washington or Tehran but in Beijing, and it received almost none of the attention it deserved. Speaking at a forum in the Chinese capital in early July, Iran’s ambassador to China said that vessels transiting the Strait of Hormuz would be charged fees, but that China and other friendly nations would receive special considerations in how those fees were set. In a single sentence, Iran converted a contested waterway into an instrument of geopolitical alignment.

This is worth slowing down on, because it inverts a principle the West has treated as settled. Freedom of navigation means passage on equal terms for all flags. A tiered fee structure that privileges Beijing and penalises others is a direct assault on that principle, and it arrives precisely as European powers have privately concluded that some form of Hormuz fee is now inevitable. The United Kingdom and France have pressed Tehran and Muscat not to discriminate by nationality, which tells you they expect discrimination to be exactly what emerges. The gap between the Western insistence that no fees are permissible and the Iranian assumption that fees are certain, and will favour China, is the fault line along which the post-war order is forming.

To understand why Iran is so confident, look past the day-to-day escalation to what the war did to the Iranian state itself. In the analysis of Narges Bajoghli and Vali Nasr of Johns Hopkins, the conflict did not break the Islamic Republic but transformed it, elevating a younger, technocratic and nationalist generation that governs by statecraft rather than revolutionary ideology. This new leadership has concluded that reintegration into the Western financial system is unattainable and has pivoted decisively toward Beijing. One Iranian analyst put the shift starkly, telling the authors that “managing Hormuz is the key” now that sanctions relief is no longer expected. Iran’s foreign minister, after meeting his Chinese counterpart, spoke of a new era of cooperation between the two states.

For Western businesses, the implication is uncomfortable. The strait is no longer an open sea lane underwritten by American power; it has become an Iranian asset, and the guarantor of the alternative order is China. A firm shipping energy or goods through Hormuz may find, within a year, that its costs of passage depend on the diplomatic posture of its home government toward Beijing. That is a form of political risk that treasury and procurement functions are not structured to price.

Outlook

The strategic reordering here runs deeper than energy logistics. What is emerging is a template, in which control of a physical chokepoint becomes a lever in the wider contest between a US-led and a China-led economic bloc, and companies are pushed, transaction by transaction, toward choosing a side. The Gulf states themselves are hedging visibly, softening their opposition to Iranian fees in the name of de-escalation and recalculating whether American security guarantees are worth what they once were. That recalculation, more than any single deal, is the war’s lasting geopolitical dividend to Beijing.

Expect the fee question to become a proxy for alignment. If Iran succeeds in institutionalising preferential treatment for China, it will have demonstrated that chokepoint control can be monetised along geopolitical lines, a lesson that will not be lost on other states sitting astride critical waterways. The commercial world should watch whether other chokepoints begin to see similar logic applied. The precedent, not the Gulf tonnage, is the real exposure.

Political Instability & Civil Unrest in Key Markets

For all the machinery of diplomacy, the defining feature of the current moment is that the war is not actually over, and the mechanism most likely to reignite it runs through Lebanon. The memorandum explicitly required an end to fighting on all fronts, Lebanon included, yet within days of signing, the talks meant to formalise it collapsed when Hezbollah and Israeli forces clashed in the south. This is not incidental. Iran has deliberately linked the strait to Lebanon, tying the reopening of the world’s single most important oil artery to a conflict on Israel’s northern border that neither Washington nor Jerusalem fully controls.

The logic is coherent once you see it from Tehran. Iran learned from the Gaza war that allowing Israel to fight each element of its regional network in sequence was a costly error, and this time it activated Hezbollah and Iraqi militias simultaneously, forcing a second front. Takaya Soga, chief executive of Japan’s NYK Line, articulated the risk most clearly, warning that continued Israeli operations against Hezbollah could give Iran grounds to argue the terms were violated and move toward another closure. When the head of a nine-hundred-vessel fleet is reading Lebanese politics as a leading indicator of Gulf shipping risk, the interconnection is no longer abstract.

The events of early July showed how fast the situation can escalate. After Iranian attacks on Qatari and Saudi tankers near the strait, including a confirmed strike on a QatarEnergy vessel that Doha called a “grave and explicit violation of international law”, the United States struck more than eighty Iranian targets on one day and around ninety the next. American strikes hit Kharg Island, through which some ninety per cent of Iran’s oil is exported, and the perimeter of a nuclear power plant. Iran fired on US bases in Kuwait and Bahrain. President Trump declared the ceasefire over, called Iran’s leaders scum, and warned of a thousand missiles ready to fire should any attempt be made on his life, following Israeli intelligence of an alleged plot.

Within days it had escalated again. After a third round of US strikes, more than three hundred targets in three days, the Revolutionary Guards declared the strait closed outright and fired on US facilities in Jordan, Qatar, Kuwait, Bahrain and Oman, including the logistics hub at Duqm. Oman, which came through the war largely unscathed and had just hosted talks on the strait’s future, is once again a target in spite of its mediation.

And yet, tellingly, the talks did not die. Even as it declared the ceasefire finished, Washington confirmed Iran had asked to continue negotiating and that it had agreed. Iran’s foreign minister travelled to Oman that same weekend to discuss safe passage. This oscillation, bellicose rhetoric layered over a diplomatic track that refuses to close, is the actual shape of the conflict, and it is more durable and more dangerous than either a clean peace or an open war.

The new Iranian leadership negotiates from a position it regards as strength, not desperation, even as the killing of the previous supreme leader and the injuries to his unseen successor leave real questions at the very top. Tehran is not the monolith outsiders assume. Its naval commanders in the Gulf have acted on their own initiative before, sometimes ahead of central command. The political mandate to negotiate is real, not theatre, but that does not mean the forces on the water are reading from the same script, and that gap is what makes the ceasefire so hard to police.

Outlook

For businesses with physical exposure in the Gulf, the operative assumption should be recurrent volatility punctuating an incomplete peace, not either resolution or all-out war. The most acute risk is not a single catastrophic closure but the cumulative drag of an environment in which the strait can be disrupted at will, insurance stays elevated, and any regional flashpoint, Lebanon above all, can trigger a fresh spike. Workforce security, asset protection and continuity planning in Gulf-facing operations should be resourced for a prolonged period of instability rather than a return to normal.

The specific markets to watch are the smaller Gulf states hosting US bases, Kuwait and Bahrain, which have been struck again and whose calculations about American protection have shifted permanently. Pakistan, forced back onto expensive spot-market LNG during a heatwave, illustrates how quickly the instability transmits into the energy and fiscal stress of import-dependent neighbours. The countries that manage this best will be those that have already diversified their energy sourcing and their security relationships; those that bet everything on a single supplier or a single guarantor face the hardest adjustment.

From Negotiation to Rupture

The primary scenario tested in this edition of Shifting Sands is the one the evidence most strongly supports, and it is essentially the one Simon Gass foresaw. Gass, Britain’s former ambassador to Tehran and its lead negotiator on the 2015 nuclear deal, expects a “messy, protracted negotiation” stretching well beyond the sixty-day window, punctuated by the kind of volatility spikes seen in early July, and ending not in clean resolution but in an uneasy, monetised equilibrium over the strait. The 2015 nuclear deal took twenty months to conclude in a far more trusting environment; the notion that the far harder questions now on the table can be settled in sixty days is not credible. Iran negotiates from confidence, the United States from domestic impatience, and the most probable outcome is repeated extensions and a strait that reopens slowly and partially while the fundamental disputes grind on.

The alternative is no longer merely possible; by mid-July it was partly realised. A third round of strikes, a formal Iranian closure of the strait and missile exchanges reaching US bases across the Gulf brought the two sides closer to full military resumption than at any point since the ceasefire. That the negotiating channel survived even this is the single strongest piece of evidence for the primary scenario, but the margin between the two has narrowed to almost nothing. The commercial difference between them is stark. The primary path means elevated costs and chronic uncertainty that can be managed with hedging and diversification. The rupture scenario means a sustained closure against a global buffer already at a forty-three-year low. Because that buffer is so much thinner than it was in February, the same closure now would drive a sharper oil-price shock and leave far less time to find alternative supply than it did the first time round.

The signal to watch is Lebanon. A durable Israel-Hezbollah settlement would remove Iran’s most usable pretext for renewed closure and tilt the balance toward the protracted-negotiation path. Its absence keeps the rupture scenario live.

The Here and Now

The immediate crisis is no longer a future date but a present fact: the strait is closed again as this edition goes out. Beyond it, two markers still matter. The first is the expiry of the sixty-day free-transit window in mid-August, after which, assuming transit resumes at all, Iran intends to begin charging for passage, with terms that may favour China and penalise others. The second is less a date than a threshold: the point at which insurers and shipping lines judge the strait genuinely safe, which on current evidence remains months away, not weeks. The practical task now is to stress-test exposure against a strait that stays closed or half-open and a fee regime that has not yet crystallised.

For operational leaders, that means confirming now which of your supply chains depend on Hormuz transit, what your inventory buffer actually is in weeks rather than assumptions, and whether your logistics contracts price in the multi-modal redundancy the war has shown to be essential. For investors and treasury functions, it means pricing chokepoint and alignment risk directly, examining which counterparties and receivables sit behind Gulf energy flows, and recognising that the cost of moving goods and energy through the region may soon depend on geopolitical posture rather than commercial terms alone.

The temptation, as oil prices ease and the headlines fade, will be to declare the crisis over and return to business as usual. That is precisely the judgement the physical evidence warns against. The strait is closed again, whatever the paperwork promised, and the world that depended on it running freely and cheaply is not coming back.

References

Mathews, Sean. Middle East Eye: ‘From outlier to trailblazer: How Oman offers a glimpse into the post-war Gulf,’ 16 June 2026.

Tanaka, Nobuo. International Energy Agency, quoted in Semafor: ‘Former IEA chief says world faces a “third oil shock” despite US-Iran deal,’ 19 June 2026.

Sawan, Wael. Shell, quoted in Financial Times: ‘The long way back from the Iran energy shock,’ 17 June 2026.

Morgan Stanley. Gulf oil and gas production recovery estimates, June 2026.

Croft, Helima. RBC Capital Markets, quoted in Financial Times: ‘The long way back from the Iran energy shock,’ 17 June 2026.

Soga, Takaya. NYK Line, quoted in Financial Times: ‘Mines will hold back Strait of Hormuz shipping for months, CEO warns,’ 28 June 2026.

Rahmani Fazli, Abdolreza. Iran’s Ambassador to China, quoted in Al Jazeera: ‘Iran’s China envoy vows “special” Hormuz treatment for “friendly” countries,’ 5 July 2026.

Paul, Stefan. Kuehne+Nagel, quoted in Financial Times: ‘Trucks cannot replace Strait of Hormuz shipping, says top freight forwarder,’ July 2026.

Holland, Steve, Parisa Hafezi, Phil Stewart and Yomna Ehab. Reuters: ‘US strikes Iran, Tehran hits Gulf states, says Strait of Hormuz closed,’ 11 July 2026.

Bajoghli, Narges and Nasr, Vali. Foreign Affairs: ‘Iran’s New Grand Strategy: How a Remade Islamic Republic Will Reshape the Middle East,’ 3 June 2026.

Mauldin, Alan. TeleGeography, quoted in Financial Times: ‘Stalled subsea cable projects threaten Middle East digital ambitions,’ 25 June 2026.

al-Ansari, Majed. Qatar’s Foreign Ministry, quoted in Financial Times: ‘US revokes waiver allowing Iranian oil sales after tanker strikes in Strait of Hormuz,’ July 2026.

Gass, Simon. Former UK Ambassador to Iran. Financial Times: ‘Reaching a nuclear deal with Iran will be much harder than in 2015,’ 19 June 2026.

Sand, Peter. Xenata, quoted in Financial Times: ‘Trucks cannot replace Strait of Hormuz shipping, says top freight forwarder,’ July 2026.

• Freight rates into the Gulf have surpassed Covid-era peaks and trade flows have fallen by as much as 80 per cent - but financial markets continue to price a near-term resolution that active diplomacy has repeatedly failed to deliver.

• The Hormuz crisis is transmitting into industrial commodity markets beyond oil and gas, threatening copper and aluminium supply chains that underpin AI infrastructure and the energy transition.

• The UAE is converting crisis into strategic advantage, expanding its commercial footprint across multiple geographic vectors simultaneously while Gulf states diverge along multiple fault lines.

• The European Central Bank has warned that equity valuations and sovereign bond markets are dangerously exposed to a geopolitical shock that investors are systematically underweighting.

Context

On 28 February, US and Israeli forces launched strikes on Iran. Tehran responded by asserting control over the narrow waterway at the mouth of the Gulf, through which a fifth of global oil and gas supply moved before the conflict began. What followed was not the swift resolution that markets initially anticipated. It was the beginning of a managed drift: a condition in which the strait is neither open nor closed but contested, diplomacy repeatedly approaches agreement without reaching it, and the global economy absorbs costs that compound with every passing week.

Four months in, the pattern has not broken. A fragile ceasefire agreed in April has survived two serious escalation cycles. Mediation efforts led by Pakistan and Qatar have struggled to bridge the gap between Washington’s demand for a 60-day ceasefire extension, Hormuz reopening and nuclear talks, and Tehran’s calculation that time and pain are on its side. Fresh exchanges of strikes as recently as 10 June have damped what optimism remained.

The commercial consequences are no longer speculative. They are visible in freight markets, commodity prices, investment decisions and central bank risk assessments. What is not yet visible in asset prices is the cost of the scenario that the evidence increasingly supports - not resolution, but prolongation.

As this edition goes to press, Iran’s foreign minister Abbas Araghchi has described a potential deal as having “never been closer,” with a US official echoing that assessment while cautioning that an agreement had not yet been reached. The two sides’ accounts of what any deal would contain differ materially - Washington insists on full Hormuz reopening and nuclear dismantlement; Tehran frames the strait’s future administration as a matter of Iranian and Omani sovereignty. Israel’s continued strikes on Hezbollah in Lebanon add a further complication. Whether these gaps close over the coming days will determine whether the drift scenario described in this edition gives way to something more consequential - or whether, as Niall Ferguson predicted, the conversation continues unchanged.

Energy Security & Supply Chain Exposure

The numbers that matter most are not the ones making headlines. Oil prices - Brent currently around $95 a barrel, down from a peak of $126 - have receded enough to generate a false sense of containment. The more consequential figures are in the freight and logistics data. In May, Clarksons Research put the cost of shipping a standard container on the Shanghai to Gulf route at $4,131 - more than four times the pre-war rate of $980 and above the $3,960 Covid peak of 2021. The physical picture is equally stark. Hapag-Lloyd’s Chief Executive Rolf Habben Jansen has estimated that inbound Gulf trade volumes have contracted by 60 to 80 per cent, daily Hormuz transits have dropped from around 135 to almost nothing, and 43 ships had been attacked as of 10 June, according to the International Maritime Organization.

The bypass infrastructure assembled in response is real and running at its ceiling. Aramco’s Chief Executive Amin Nasser has called the East-West pipeline a ‘critical lifeline’ for the Kingdom - it is now running at capacity. The UAE’s existing Abu Dhabi Crude Oil Pipeline carries 1.5 million barrels per day to Fujairah, and every major shipping line has opened lorry routes through Saudi Arabia, Iraq, Jordan and Turkey. But the structural problem is one of scale. None of it comes close to replicating the throughput of the deep-water vessel traffic that previously transited the strait.

The response to that ceiling is now visible in capital decisions rather than emergency measures. The UAE has announced the acceleration of a new West-East Pipeline project that will double export capacity at Fujairah, with an operational target of 2027. Sharjah has activated a land corridor to Omani ports - Sohar, Duqm and Salalah - combining maritime and overland routes through the Khatmat Malaha border crossing, with first shipments dispatched in May. These are not crisis workarounds. They are permanent infrastructure investments that will reshape Gulf export architecture regardless of how the strait dispute resolves.

The humanitarian dimension is the least-priced element of the disruption. The World Food Programme reported a Sudan-bound aid consignment reaching its destination two months behind schedule after rerouting via the Cape of Good Hope; a separate Afghanistan shipment transited nine countries by road before arriving, 43 days late, via Turkmenistan. West African nations face fertiliser shortages that are expected to sustain higher food prices well into next year. Jasper Verschuur of Oxford University has noted that each week of Hormuz closure tends to generate roughly a month of downstream supply chain disruption - a ratio that, applied to four months of conflict, suggests the system-wide damage extends well into 2027 regardless of when a deal is reached.

The deeper question for operational leaders is not whether the strait reopens but whether it reopens on its old terms. The insurance repricing that London markets have applied to Hormuz-adjacent routing is structural, not cyclical. Infrastructure being built now - pipelines, land corridors, port concessions - reflects commercial operators’ own assessment that the pre-war routing economics are gone.

Outlook

The bypass infrastructure gap has not closed. The projects announced will not complete until 2027 at the earliest - meaning the current shortfall is the operating reality for the foreseeable future, regardless of how the diplomatic situation develops. For supply chain leaders, the operational implication is a multi-year period of elevated freight costs, longer transit times and heightened exposure to secondary disruptions - including copycat actions at other chokepoints. Verschuur’s research identifies 24 narrow straits globally; the Red Sea and Suez are considered most vulnerable to actors who have observed Iran’s leverage model in operation. Threatening a chokepoint costs relatively little. Defending one against that threat costs a great deal more. That asymmetry does not disappear when Hormuz stabilises.

Critical Resources Beyond Energy

The Hormuz crisis entered commodity markets through the most obvious channel first - oil and gas prices. It is now transmitting through three others that are less visible but structurally more durable.

The first is input cost inflation. The price of sulphur, produced as a residual output of oil refining, has risen by more than 100 per cent since February. Sulphuric acid is a critical input for copper and nickel mining - and the supply chain consequences are already measurable. Wood Mackenzie estimates that sulphur disruption alone could take up to 125,000 tonnes of Congolese copper output offline, while Morgan Stanley’s Amy Gower puts a further 200,000 tonnes of Chilean production at risk, compounded by Beijing’s decision to restrict sulphuric acid exports. Higher diesel prices are simultaneously raising operating costs at mines globally.

The second channel is direct infrastructure damage. Almost 10 per cent of the world’s refined aluminium comes from the Middle East. Alba and Emirates Global Aluminium are among the producers that have scaled back following Iranian strikes that damaged their facilities and disrupted supplies of alumina - the refined ore that feeds the smelting process - through the strait’s near-closure.

The third is the pre-existing structural deficit that the crisis has now accelerated. Goldman Sachs began the year projecting a 60,000-tonne copper deficit outside the US; that estimate has since been revised tenfold, to 640,000 tonnes, with the bank’s copper price forecast raised 10 per cent to $13,735 per tonne by year-end. The market is already reflecting the strain. Copper is close to its all-time closing high and aluminium is at its highest level in four years.

Paul Bloxham, Chief Economist for global commodities at HSBC, describes the current environment as a “super squeeze” - a formulation that captures something important. Previous commodity supercycles were driven by demand growth outpacing supply investment. This one is driven by simultaneous supply disruptions across multiple input chains. The distinction matters because demand-driven cycles can be moderated by substitution and price response. Supply squeezes of this kind do not respond to the same mechanisms.

The commercial implications extend beyond mining portfolios. Copper underpins data centre wiring. Aluminium is the primary material for server racks. The OECD has separately identified AI investment as specifically exposed to the prolonged disruption scenario, given the sector’s energy intensity and its dependence on Gulf-linked commodity supply chains. The connection between a contested strait and the economics of AI infrastructure build-out is not intuitive - but it is real, and it is not yet reflected in how technology sector investors are pricing geopolitical risk.

Outlook

The critical distinction for investors is between cyclical and structural damage. If Hormuz stabilises tomorrow, oil prices recede and freight markets normalise. Copper deficits, aluminium production losses and mine investment shortfalls do not resolve on the same timeline. The Goldman Sachs deficit revision reflects decisions and disruptions that have already occurred; recovering that lost production requires years of investment cycles, not weeks of diplomatic progress. Companies with significant exposure to copper-intensive infrastructure - renewable energy, electric vehicles, data centres - face a prolonged period of elevated input costs that will compress margins and test capital allocation assumptions made in a lower-price environment. The structural beneficiaries are mining companies with clean, low-cost copper supply outside the disrupted corridors - particularly in jurisdictions outside the primary geopolitical blast radius.

Trade & Investment Architecture

The most strategically consequential response to the Hormuz crisis is not happening in a military operations room. It is happening in boardrooms in Abu Dhabi.

Since February, the UAE has been executing what amounts to a simultaneous expansion across multiple geographic vectors. To the east, it is building pipeline and port infrastructure through Fujairah and activating land-maritime corridors into Oman. To the west, it is moving aggressively into Syrian reconstruction - DP World has committed $800 million to expand and manage Tartous port under a 30-year concession, the opening move in what has since become a much larger Emirati commercial push into Syria. Emaar Properties has announced plans totalling approximately $18 billion across Damascus and the Syrian coastline, split between capital city development and coastal infrastructure. Sharjah’s Dana Gas has signed a preliminary deal to redevelop gasfields near Homs. Overland, UAE-backed rail and trucking corridors are hardening connectivity across the region’s interior. And Syria’s southern land crossings and Mediterranean ports are being positioned as the infrastructure foundation for the India-Middle East-Europe Economic Corridor (IMEC) - the US-backed trade route whose revival Abu Dhabi is now actively financing.

This is not opportunism. It is the application of a model the UAE has already validated elsewhere. In Egypt, where Emaar has deployed more than $18 billion, the model has delivered returns of $103 million in 2025 and $290 million the year before. As Anas Alqaed argued in Foreign Policy, Abu Dhabi’s Egypt experience demonstrated that strategic capital deployed into a financially strained country in transition can generate both geopolitical leverage and commercial return. Syria’s reconstruction bill is estimated by the World Bank at $216 billion - roughly ten times the country’s 2024 economic output. Its energy ministry alone is seeking over $30 billion to rebuild oil, gas, power and water infrastructure. The opportunity is structurally similar to Egypt at larger scale.

Saudi Arabia is competing on similar terrain. Riyadh signed $2.8 billion in verified investment commitments with Damascus in February - covering airports, telecoms, aviation and desalination - alongside a $1.5 billion refugee return pledge confirmed by Karam Shaar Advisory against UN OCHA data as 4.4 times larger than its previous peak annual Syria contribution. UAE capital is further advanced: DP World’s Tartous concession is operational, Emaar’s contracts are signed and Dana Gas is in preliminary agreements. But a governance risk cuts across both. Gulf bilateral commitments to Syria - the majority non-binding memoranda of understanding - now exceed $28 billion against roughly $766 million in verified Western and multilateral financing that carries governance conditions. The gap between unconditioned and conditioned capital defines the reconstruction’s character. As Güney Yıldız has argued in Forbes, the absence of governance frameworks is not incidental to the pace of investment. It is what makes it possible. The UAE may be buying proven position and Saudi Arabia a political stake - but both are operating in an institutional environment that has yet to be built.

This rivalry is one of three simultaneous fault lines now visible in Gulf institutional dynamics. The first is the divergence between Saudi Arabia and the UAE over the Helsinki-style non-aggression framework with Iran, a division that reflects fundamentally different assessments of how to manage Tehran over the long term. The second is the competition just described over Syrian reconstruction and the routing architecture it will anchor. The third is a broader Gulf wariness about US reliability that is pushing states to hedge their dependence on Washington by deepening alternative relationships. Jon Alterman of the Center for Strategic and International Studies has observed that Trump’s style of diplomacy produces exactly the hedging behaviour it is designed to prevent: “He can be won over, but it doesn’t mean he stays won over.” That unpredictability is now a structural variable in how Gulf states make long-term capital and partnership decisions, not merely a diplomatic irritant.

The commercial implication for multinationals is that the Gulf is not a monolithic investment environment. The divergence between UAE and Saudi strategic postures, the competition over Syrian infrastructure and the differential exposure to US pressure create a more complex map of risk and opportunity than a unified “Gulf exposure” framing captures.

Outlook

Syria is the most consequential new investment frontier in the region and the one most multinationals have yet to price into their market entry calculus. The sequencing of Syria’s financial reintegration - sovereign credit rating pursuit, SWIFT reconnection, Federal Reserve account reactivation, Visa and Mastercard resumption, IMF and World Bank reconnection - is moving faster than physical reconstruction. That gap between financial architecture and physical capacity is where early-mover advantage accumulates. The UAE understands this, which is why its capital is already committed. The structural constraint is real: the Jordan-Syria land corridor, which underpins both IMEC and the UAE’s westward routing strategy, runs through territory complicated by Israeli military activity in southern Syria. Any company or investor building exposure to Syrian reconstruction infrastructure needs to hold that risk explicitly rather than pricing it away.

Currency, Sanctions & Capital Risk

Two of the world’s most important institutional economic monitors have now said the same thing in the same month, from different angles. The OECD’s dark scenario, disruption persisting into 2027, puts global growth at 1.8 per cent, energy prices 50 per cent above current futures levels, and central banks raising rates by up to 0.75 points to contain the damage. The European Central Bank’s (ECB) twice-yearly financial stability review, released in late May, warned that equity valuations are “stretched by historical standards” and bond risk premia compressed to levels that leave little buffer against a sudden repricing. Together they describe a financial system in which investors appear to be pricing in an outcome that neither institution believes the evidence supports.

That warning materialised on 12 June when the ECB became the first G7 central bank to raise rates in response to the energy shock, lifting borrowing costs by a quarter point to 2.25 per cent.

The gap between those two assessments - what institutions are projecting and what markets are pricing - is the most important single variable for senior investors right now. It is not a gap between optimists and pessimists. It is a mispricing of the timeline.

The OECD’s central scenario assumes the crisis can be resolved soon. That assumption is doing a great deal of work. As Niall Ferguson argued at the Hoover Institution’s Goodfellows on 3 June, Iran has not settled because it has not yet inflicted enough pain on the US economy. The strategic petroleum reserve drawdown that has cushioned the shock is approaching its limit. Inflation is building toward double the Federal Reserve’s target. The new Fed chair Kevin Warr inherits a textbook stagflation trap: cutting rates to support growth would fuel inflation already running toward double the Fed’s target, while raising them to contain prices would deepen the slowdown. Neither tool is clean. Ferguson’s expectation: no breakthrough by the Fourth of July, and likely not by Labour Day. That timeline may be extended further still. Helima Croft of RBC Capital Markets has suggested that lower oil prices - down from the $126 peak - may be reducing Washington’s urgency to settle, giving the White House room to pursue “increased confidence to pursue more maximalist goals” rather than accept a compromise deal. Iran is waiting for the equity markets to feel the pain. Washington, for now, is not yet feeling it enough to deal.

The ECB’s concern is not just about energy prices. It is about the interaction between an energy shock, stretched valuations and the growing presence of price-sensitive investors in sovereign bond markets. A reassessment of sovereign risk, the ECB warns, could be amplified by that market structure in ways that central banks would find difficult to contain. The UK carries both an energy shock and a political risk premium, facing the joint-highest G7 inflation rate this year at 3.7 per cent alongside the US.

The sanctions architecture is itself becoming a source of instability. Iran’s Persian Gulf Strait Authority (PGSA), now sanctioned by the US Treasury, has nonetheless received permit requests from over 300 shipping companies, the majority routing toward Asian buyers. The US Treasury has simultaneously prohibited American citizens from receiving any services from the Iranian government, including safe passage guarantees. Companies with operations in both US and Asian jurisdictions face a compliance architecture that is increasingly impossible to navigate without making an explicit choice of alignment.

Outlook

The ECB’s warning about mispriced risk deserves to be read as an operational instruction, not merely an institutional caution. Companies and investors holding Middle East exposure - energy assets, infrastructure positions, receivables denominated in regional currencies - should stress-test that exposure against the dark scenario rather than the central scenario. The dark scenario is not a tail risk in the conventional sense: it is what the evidence currently supports if Ferguson’s settlement calculus is correct. The specific transmission mechanisms to watch are sovereign bond repricing in markets carrying elevated debt and energy exposure, private credit stress as borrowing costs rise and the AI investment cycle, which is exposed to both energy cost inflation and the commodity supply squeeze documented above. The ECB’s move on 12 June is a signal that the drift scenario is already extracting a monetary policy cost that markets had not fully priced

If the Guns Fall Silent

The primary scenario in this edition of Shifting Sands is managed drift: an unstable oscillation between tactical strikes and failed mediation that neither resolves into durable peace nor escalates into the sustained military campaign that some in Washington advocate. That scenario is damaging enough on its own terms. But it is worth examining the alternative that sits on the other side of the ledger - not further escalation, but faster resolution.

Imagine a deal is reached within 60 days. Iran agrees to a ceasefire extension, nuclear talks begin and Hormuz reopens to something approaching pre-war transit levels. What would that world actually look like?

Not the one markets appear to be pricing. The freight infrastructure damage is already done - backlogs measured in months, with Verschuur’s ratio suggesting system-wide disruption extends well into the fourth quarter regardless. The commodity supply chains disrupted by sulphur pricing, mine production losses and aluminium smelter damage do not recover on a diplomatic timeline. The routing decisions made by commercial operators - the permanent repricing of Hormuz-adjacent insurance, the infrastructure investments now underway in Fujairah, along the Sharjah-Oman corridor and at Tartous - reflect judgements that are not reversed by a ceasefire announcement.

The more consequential insight is geopolitical. A rapid resolution would freeze the strategic repositioning now underway before it reaches its natural conclusion. The UAE’s Syrian investments, the Gulf hedging dynamic, the Chinese analytical consensus that the era of US-guaranteed freedom of navigation is over - none of these reverse if a deal is signed. The physical and institutional geography of the Middle East is being redrawn by actors who are not waiting for the strait to reopen. A ceasefire accelerates the moment of reckoning for that new map. It does not undo it.

What the Drift Costs You

The drift scenario has a commercial logic that is easy to underestimate because its costs accumulate gradually rather than arriving in a single shock. That gradualism is precisely the risk. Each week of sustained disruption adds another month of downstream supply chain dislocation. Each month without resolution pushes the OECD dark scenario threshold closer. Each quarter of elevated commodity prices compounds the margin pressure on copper-intensive sectors.

For operational leaders, the immediate priority is not contingency planning for escalation - it is recalibrating the baseline. Freight costs above Covid peaks, transit times extended by weeks and a bypass infrastructure that cannot fully replace deep-water vessel capacity are not temporary aberrations to be managed around. They are the new operating environment for at minimum the next 12 to 18 months. Supply chain strategies built on pre-February assumptions about Gulf routing need to be rewritten, not adjusted.

For investors, the ECB’s warning about mispriced risk is the most actionable single insight available right now. The gap between the central scenario that markets are pricing and the prolonged disruption scenario that institutions are modelling is not a question of analytical judgment. It is a question of timeline. The mechanisms that would force a resolution - US equity market pain, strategic petroleum reserve exhaustion, a Fed chair with no room to cut - are building. They are not yet visible in asset prices. The window in which that repricing can be anticipated rather than reacted to is closing.

The Hormuz strait will reopen on some terms, at some point. The question that matters in every board meeting between now and then is clear: on whose terms does the strait reopen, and what happens to the assumptions on which current portfolios and supply chains were built?

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References

Habben Jansen, Rolf. Hapag-Lloyd, quoted in Financial Times: ‘Gulf freight rates jump as shipping companies turn to trucks,’ 17 May 2026.

Nasser, Amin. Aramco, quoted in Al Jazeera: ‘UAE to accelerate oil pipeline project to bypass Strait of Hormuz,’ 15 May 2026.

International Maritime Organization. ‘IMO Secretary-General strongly condemns ship attack near the Strait of Hormuz,’ 10 June 2026.

Verschuur, Jasper. Oxford University, quoted in Financial Times: ‘The power struggle in the world’s narrow seas,’ 24 May 2026.

Abramov, Artem. Rystad Energy, quoted in Financial Times: ‘The power struggle in the world’s narrow seas,’ 24 May 2026.

Bloxham, Paul. HSBC, quoted in Financial Times: ‘Iran war tightens super squeeze in metals markets,’ 11 June 2026.

Gower, Amy. Morgan Stanley, quoted in Financial Times: ‘Iran war tightens super squeeze in metals markets,’ 11 June 2026.

Alqaed, Anas. Foreign Policy: ‘The UAE’s Syrian Gambit,’ 20 May 2026.

Fève, Benjamin. Karam Shaar Advisory: ‘Saudi Pledge Dwarfs Past Syria Aid,’ May 2026.

Yıldız, Güney. Forbes: ‘Saudi Arabia’s $3 Billion Syria Reconstruction Push Has One Problem: No Rules Yet,’ 9 February 2026.

Alterman, Jon. Center for Strategic and International Studies, quoted in Financial Times: ‘Trump’s outbursts rattle Gulf allies,’ 7 June 2026.

Ferguson, Niall. Hoover Institution, Goodfellows: podcast discussion, 3 June 2026.

European Central Bank. ‘Financial Stability Review,’ May 2026.

Storbeck, Olaf. Financial Times: ‘ECB raises interest rates for first time since 2023,’ 11 June 2026.

OECD. ‘Global Economic Outlook,’ May/June 2026.

Croft, Helima.RBC Capital Markets, quoted in Financial Times: ‘US and Iran exchange fresh wave of strikes,’ 10 June 2026.

• Iran has created a formal bureaucratic authority to administer Hormuz transit and levy tolls - transforming a military disruption into a proposed permanent governance structure

• Global oil inventories are depleting at 100 million barrels a week; JPMorgan projects OECD commercial stocks reach operational stress levels by early June

• The Trump-Xi summit produced no commitment from Beijing to pressure Tehran - closing the most credible near-term diplomatic circuit without a resolution mechanism

• Bypass infrastructure is running at its emergency ceiling: pipelines at capacity, truck convoys scaling fast, Panama Canal at record transits - and still insufficient to close the supply gap

• The crisis is sorting economies by vulnerability: India in acute currency stress, the UK carrying a political risk premium on top of the energy shock, the US insulated but with its own inventory trigger approaching

Context

On 28 February, the United States and Israel launched military strikes against Iran, triggering the closure of the Strait of Hormuz - the narrow waterway through which roughly one fifth of the world’s oil and gas normally flows. Iran responded by striking Gulf Arab infrastructure, closing the strait to commercial traffic and, after a ceasefire in April, asserting administrative control over what passes through it.

The ceasefire has not produced a settlement. Both sides have continued exchanging fire below the threshold of full re-escalation, while back-channel negotiations - led by Pakistan, with Qatar and Turkey as supporting actors - have stalled. Iran submitted a peace proposal on 11 May that the United States rejected immediately. A summit between Donald Trump and Xi Jinping in Beijing on 14-15 May, the most significant diplomatic event since the ceasefire, produced no breakthrough and no Chinese commitment to press Tehran.

For C-suite leaders and investors, the military and diplomatic picture is less important than what it implies for the commercial environment. The question is no longer when Hormuz reopens. It is whether it reopens on terms the global economy previously took for granted - and what the period of adaptation costs, who bears those costs, and what new geography of trade is being built in the meantime.

Energy Security & Supply Chain Exposure

The global energy system is not in crisis yet. But the gap between where it is and where crisis begins has never been smaller.

When the conflict began, the world had stockpiled roughly 8.4 billion barrels of oil. That figure sounds substantial. It is not. Of those 8.4 billion barrels, only around 800 million could actually be drawn without triggering what analysts call operational stress - the threshold beyond which the system seizes: grades go unmatched, terminals congest and pipeline pressure collapses. The remainder is locked in pipeline fill, minimum tank levels and day-to-day operational requirements.

Natasha Kaneva, head of global commodities strategy at JPMorgan, has described the depletion sequence as an onion - each layer stripped away according to how quickly it can be reached, at what cost and with what political will behind it. The world has worked through floating storage, commercial inventories and government strategic reserves. It is now in the fourth layer - demand destruction - where higher prices are forcing consumers and industry to use less, rationing supply through cost rather than policy. The scale of the pullback is without modern precedent outside the pandemic: demand fell by an average of 2.8 million barrels a day in March, accelerated to a 4.3 million barrel a day reduction in April, and is projected to deepen further to 5.5 million barrels a day in May as the system approaches its operational limits.

The pace of depletion has accelerated. According to Amin Nasser, chief executive of Saudi Aramco, the world has lost a cumulative one billion barrels of oil supply since the war began, with a further 100 million barrels lost for every week the strait stays closed. Strategic reserves in Europe and the United States can release a maximum of around two million barrels a day combined. The world is currently losing the equivalent of roughly 14 million barrels a day while the strait stays closed. At maximum draw rate, the reserves cover barely one day of losses in seven - and the buffer is far thinner than headline stockpile figures suggest. Goldman Sachs puts global refined product supply at just 45 days - with Asia and Africa among the hardest hit regions. In northern Europe, jet fuel stocks fell to a six-year low in April.

Kaneva’s conclusion, stated plainly, is that “one way or another the strait reopens in June.” She is not predicting a diplomatic resolution. She is identifying a physical forcing function: OECD commercial stocks approach operational stress floors in early June, and the market cannot continue absorbing supply losses at the current rate without a structural response. The coming disruption will not announce itself through crude prices. It will arrive in empty forecourts, grounded flights and rationed diesel - a refining and distribution crisis felt by consumers before traders. The price action of recent weeks illustrates how distorted market signals have become: Brent peaked above $126 a barrel in late April, fell back toward $100 as the ceasefire held, then jumped 4.2 per cent to $105 on a single Truth Social post from Trump declaring Iran’s peace proposal totally unacceptable. Markets are pricing diplomatic tone rather than physical fundamentals - and the repricing when fundamentals assert themselves will be abrupt.

The bypass response is real, already operational and running at its ceiling. Saudi Arabia’s 1,200-kilometre East-West pipeline is pumping at its maximum emergency capacity of seven million barrels a day - three and a half times its pre-war throughput. On land, Maaden, the Saudi state mining company, mobilised 3,500 trucks running around the clock from the Gulf to the Red Sea within weeks of the conflict starting, with shipping companies including MSC and Maersk following suit across the Arabian Peninsula. The transformation of Khor Fakkan, a port on the UAE’s Gulf of Oman coast, captures the scale of the improvisation: daily truck movements have surged from 100 to 7,000 and weekly container volumes from 2,000 to 50,000 since February. Across the Atlantic, the Panama Canal has nearly doubled its daily crude transit count, with oil cargoes heading to China, Japan and South Korea rising from seven to between twelve and fourteen per day. The system is being pushed in every direction simultaneously.

These are impressive adaptations. They are not solutions. The truck convoy network cannot match maritime shipping on cost or volume - it is a pressure valve, not a substitute. What this emergency infrastructure ceiling reveals is that even the bypass routes now operating at full stretch - pipelines to the Red Sea, ports on the Gulf of Oman coast - are already maxed out, with planned expansions years away from completion. Even if every announced project is finished, total bypass capacity would still leave roughly a third of pre-war flows Hormuz-dependent. The gap that remains - the volume that cannot be rerouted and cannot be cheaply replaced by alternative producers - is the strategic problem that no current plan fully addresses.

That routing logic points to the Sultanate of Oman - a country that has received comparatively little attention. Salalah, Sohar and Duqm sit outside Hormuz entirely. Muscat has maintained functional relations with Tehran throughout the conflict; it formally condemned all belligerents after Iranian strikes hit the port of Duqm itself, and congratulated Iran’s new supreme leader - a remarkable demonstration of strategic neutrality under direct military pressure. The combination of deep-water port infrastructure, political insulation from the strait contest and existing trade relationships with Asian buyers is unique among Gulf states.

The economics have shifted permanently in Oman’s favour, even before new infrastructure exists. London insurance markets will not reprice Hormuz-adjacent routing back to pre-war levels once a ceasefire holds. The market has now observed empirically that the strait can be closed for months. War risk premiums carry a new structural floor - one that makes alternative routing permanently more attractive. The Red Sea precedent is instructive: war risk premiums on that route peaked near $1 million per voyage at their height and have not returned to pre-Houthi levels despite a ceasefire. The constraints on the Oman argument are real: pipeline connectivity to Gulf production centres is limited, and the IRGC has demonstrated it is willing to operate in the Gulf of Oman itself. But the investment calculus has changed. The routing logic that would actually serve Asian demand points southward through the Sultanate - through Duqm, Salalah and Sohar, outside Hormuz entirely. The ports exist. The connecting infrastructure does not, at scale. The country and the investors that move first to close that gap will capture a structural advantage the current bypass race is not building toward.

Outlook

Kaneva’s own caveat is pointed: markets will only trust what she calls “a clear, credible announcement, ratified and confirmed by both sides.” Given the active military skirmishing and Iran already administering tolls through the Persian Gulf Strait Authority, a clean joint statement of that kind is unlikely. The more probable path is a partial, contested reopening that markets struggle to believe - and a refined product crisis that hits consumers before crude prices fully signal the stress.

For supply chain leaders, the actionable insight is that the emergency bypass ceiling is already reached. Any additional disruption hits a system with no remaining slack. Contingency planning should assume the current constraint persists through Q3 at minimum. For investors with exposure to Gulf-dependent energy flows, the Oman infrastructure story is early-stage but directionally clear - and the case has sharpened: it is not just about insurance economics and port capacity, but about who captures the stranded volume that no other bypass route can reach. The investment timeline is measured in years, not months - but the window to establish positions ahead of the infrastructure commitment is open now.

Trade & Investment Architecture

The war has not disrupted global trade. It has begun to permanently reroute it.

Victor Vial, the Panama Canal’s chief financial officer, does not speak in geopolitical abstractions. He reads booking data. His assessment, delivered in mid-May, is that even after the war ends demand will remain above pre-conflict levels. Vial expects some of the routing shift to be permanent. Operators who have found alternatives, he says, will conclude it is simply too risky to depend on the Middle East - and will not go back.

The insurance market is making the same calculation through a different mechanism. Lloyd’s and the London market do not simply reprice back to pre-war levels when a ceasefire holds. The market has observed that Hormuz can be closed for months. The risk has been empirically demonstrated, not merely modelled. The structural floor on war risk premiums for Hormuz-adjacent routing will persist well beyond any diplomatic settlement - and that permanently changes the economics of transit for every vessel that previously took the route for granted.

This repricing is already reshaping the regional investment map. The UAE has committed tens of billions of dollars to building out pipelines, upgrading port capacity and hardening its logistics network - explicitly to ensure supply continuity whatever the strait’s status. Saudi Aramco is considering expanding its Red Sea export capacity at Yanbu - a capital allocation decision that signals Riyadh’s largest company is planning on the assumption that Hormuz dependence is a permanent rather than temporary risk. Bob Wilt, the chief executive of Maaden, has set a standing objective for his company: “Let’s harden this and always have a route to the Red Sea.” These are not crisis responses. They are investment commitments made by corporate decision-makers with skin in the game.

Existing bypass routes - Yanbu on the Red Sea and Fujairah on the Gulf of Oman - are already at emergency capacity, with expansions either underway or under active consideration. New pipeline and rail infrastructure is being planned across the region. But even if every announced project is completed, total bypass capacity would cover only around two thirds of pre-war flows. The remaining third stays Hormuz-dependent - and none of the infrastructure being planned closes that gap quickly.

Some of that remaining third will be absorbed by alternative producers - the United States has already overtaken Saudi Arabia as the world’s largest oil exporter during the conflict, and higher prices are pulling in supply from elsewhere. But crude substitution is partial and expensive. The volume that cannot be rerouted through existing bypass infrastructure and cannot be easily replaced by alternative producers represents the strategic prize - and the country that builds the infrastructure to capture it first will hold a durable commercial advantage.

The Abraham Accords framework has effectively collapsed as a regional architecture. Gulf states now regard Israel as a belligerent actor that dragged Washington into a war they lobbied against. Saudi Arabia is pursuing a Helsinki-style non-aggression pact with Iran as its preferred post-war framework - explicitly modelled on the 1975 process that managed Cold War coexistence without requiring either side to transform. The EU has backed the Saudi proposal. The UAE, pursuing a different strategic logic, may sit outside any such arrangement - and that divergence matters for multinationals whose supply chain decisions, market entry timing and counterparty risk assessments depend on which regional architecture prevails.

Outlook

The redrawing of global trade routes will take years to fully express itself in infrastructure and trade flows, but its direction is already set. The companies and countries that act on that direction early will capture structural advantages that latecomers cannot easily replicate. For multinationals with Gulf supply chains, the relevant question is no longer when this resolves. The question is what their exposure looks like if Hormuz never fully reopens on its old terms. The Saudi Helsinki proposal, if it gains traction, creates a regional framework more accommodating of Iranian interests than anything Washington currently supports - which means the post-war commercial environment may look more like managed Iranian leverage than restored freedom of navigation. The infrastructure race to serve that unaddressed volume is only beginning. Which actors move earliest - and which governments facilitate them - will be one of the defining commercial stories of the post-war period.

Currency, Sanctions & Capital Risk

The financial transmission of the Hormuz shock is not hitting all economies equally. It is sorting them - and the sorting reveals structural vulnerabilities that were present before the conflict began.

India is the clearest case. It relies on imports for nine tenths of its energy needs, and in the year to March 2026 spent $174 billion doing so - the majority sourced from Gulf producers whose export capacity has been effectively eliminated. The financial consequences have been severe: foreign investors have withdrawn almost $21 billion from Indian equities since February 28, with $13 billion leaving in March alone - a monthly outflow without precedent. The rupee has fallen to a historic low above 95 to the dollar.

Ten-year government bond yields hit an all-time high above 7.1 per cent in late April. The current account is under simultaneous pressure: Nomura projects the deficit could double to 2 per cent of gross domestic product across this financial year if oil averages $87 a barrel - and Brent is currently trading well above that level. The result is a double hit: what was a capital flows problem has become a capital flows and current account problem simultaneously. Modi’s fuel price subsidies have shielded consumers - but at the cost of suppressing the demand destruction that would otherwise reduce the import bill. That subsidy is a deferred detonator.

Both South Korea and Taiwan have found themselves on the right side of the AI investment surge - exporting the semiconductors that underpin it, drawing in capital at the same moment India is losing it. The crisis is sorting emerging markets by their position in the new technology and energy supply chains. India is on the wrong side of both.

The United Kingdom presents a different stress test. Thirty-year gilt yields rose to 5.79 per cent in mid-May - their highest level since 1998. The UK’s long-term borrowing costs were already the highest in the G7 before the conflict. But the gilt sell-off is not purely an energy story. It carries a political risk premium that makes it analytically distinct from the broader sovereign bond stress visible elsewhere. Traders are betting on electoral outcomes - a Labour loss in local elections, a potential leadership shift, a loosening of fiscal rules - in ways that amplify the energy shock’s financial impact. Capital Economics estimates that Chancellor Rachel Reeves’s fiscal headroom has shrunk from £23.6 billion to approximately £18.5 billion - and that calculation does not yet incorporate the growth slowdown or the full inflationary pass-through. In a country already paying more than £100 billion a year in debt interest, the margin for error is thin.

In the United States, the financial insulation that has so far protected equity markets from the Hormuz shock is beginning to fray. US consumer price index inflation reached 3.8 per cent in April - a three-year high and a sharp acceleration from 2.4 per cent in February. Petrol costs have risen more than 50 per cent since the war began. Niall Ferguson has argued that Tehran is reading the US equity market more carefully than most Western analysts. The market remains focused on artificial intelligence, not Hormuz - and until that changes, Iran has every reason to string out negotiations. The pain point has not yet been reached. When it is, the terms on offer will look different.

That analysis implies a deliberate Iranian timeline: hold out until American consumers feel enough pain, at which point the equity market reprices and Washington’s negotiating leverage declines. Kevin Warsh, who took over as Federal Reserve chair this week, inherits this dynamic at the worst possible moment. The Federal Open Market Committee is anxious about inflation; Trump wants rate cuts; and the Fed’s toolkit is poorly suited to an energy supply crisis - raising rates can suppress demand but cannot conjure oil. If the Fed tightens - or is seen to be moving in that direction - higher borrowing costs will slow an economy already under pressure from rising energy prices, at precisely the moment the inventory clock runs out.

The sanctions architecture is also under pressure. Trump, returning from Beijing, indicated he was considering lifting sanctions on Chinese purchasers of Iranian oil. If implemented, that concession would simultaneously reduce pressure on Tehran to negotiate, increase Chinese energy security and implicitly concede that the blockade strategy cannot be sustained. It would remove one of Washington’s principal leverage points without securing any reciprocal commitment.

Outlook

The financial sorting will deepen before it stabilises. India faces a choice between defending the rupee by allowing energy prices to rise - which hits consumers and slows growth - or continuing to shield households through subsidies, which keeps the import bill elevated and the currency under pressure. For investors with Indian equity or fixed income exposure, the recovery timeline is tied not to the conflict’s diplomatic resolution but to rupee stabilisation - which requires either oil prices falling materially or capital inflows resuming at scale. Neither is imminent.

For treasury and financing teams with Gulf counterparty exposure, the sanctions question is the most acute near-term risk. Washington’s sanctions on Iranian oil work partly through deterrence - the threat that any company purchasing Iranian crude risks losing access to the US financial system. If Washington exempts Chinese buyers from that threat, the deterrent loses credibility for everyone. Other buyers - Indian refiners, Turkish traders, European intermediaries - will draw their own conclusions about how seriously the rules will be enforced. Companies that have built compliance frameworks around avoiding Iranian oil now face a harder question: if the US is selectively withdrawing enforcement, do the EU and UK sanctions regimes hold independently, or does the entire architecture fragment? That uncertainty is itself a material compliance exposure.

US-China Strategic Competition

Donald Trump arrived in Beijing needing something. That was the essential asymmetry of the summit - and Xi Jinping did not allow it to be forgotten.

The two leaders met across two days - at the Temple of Heaven, the Great Hall of the People and the walled gardens of Zhongnanhai - and emerged with no resolution on the principal divisions between their countries, no significant business commitments and no Chinese pledge to press Tehran on Hormuz. Xi’s parting gesture was a promise of rose seeds for the White House garden. The diplomatic harvest was considerably thinner. Trump arrived at the summit in what one analyst at the National University of Singapore described as the posture of a supplicant: “Trump looked like he was pleading, needing something from Xi, with all of the unrequited praise.”

The summit’s most consequential outcome was a concept, not a commitment. Xi arrived with a framework he called “new constructive strategic stability” - vague enough to mean different things to different audiences, but precise enough in its intent: to establish Beijing as the arbiter of what counts as responsible US behaviour, and to reserve the right to cry foul whenever Washington acts in ways China dislikes. The underlying shift in how Beijing handles American pressure has been years in the making. Concessions are no longer the default tool - China now leads with the credible threat of retaliation, demonstrated most sharply when rare earth export controls in 2025 sent Washington scrambling for alternatives. The summit confirmed that posture, not softened it.

The Taiwan question remained unresolved in ways that will sustain regional anxiety. Xi warned that any mishandling of Taiwan could result in conflict between the two powers. Trump said he had not yet decided whether to proceed with the planned $14 billion arms sale - a comment that will have landed in Taipei as confirmation that the sale is a negotiating chip rather than a strategic commitment. Kevin Rudd, former Australian prime minister and head of the Asia Society, has described Xi’s strategic stability concept as “leader-led détente but still with deep red lines on Taiwan.”

Security analysts have warned that Iran’s closure of Hormuz - and its institutionalisation through the Persian Gulf Strait Authority - provides a template for China in the Taiwan Strait. Taiwan’s TSMC manufactures approximately 90 per cent of the world’s most advanced semiconductors. A crisis in the Taiwan Strait - even a credible threat of one - could inflict damage on the global economy that dwarfs what Hormuz has already cost. The world has had three months to observe and partially adapt to Hormuz. It has no equivalent adaptation infrastructure for a Taiwan Strait disruption.

Niall Ferguson predicted before the summit that there would be lots of mood music and relatively little substance. The outcome confirmed that judgment. The diplomatic circuit most capable of compressing the Hormuz timeline has closed without delivering - meaning the timeline is now driven by inventory physics, not diplomacy.

Outlook

The summit’s legacy is more architectural than transactional. Xi’s strategic stability concept signals that Beijing intends to frame the US-China relationship on its own terms - managing American pressure through deterrence and selective engagement rather than concession. For multinationals caught between the two systems, that posture makes the pressure to choose sides more persistent rather than less.

The Taiwan arms sale ambiguity creates a specific near-term risk for companies with Taiwan-dependent supply chains. If Washington ultimately dilutes or delays the package as part of a broader US-China accommodation, the signal it sends about the credibility of US security commitments in the region will reverberate through investment decisions across South Korea, Japan and Southeast Asia. Any board with meaningful Taiwan semiconductor exposure should already be asking what their supply chain looks like if US security commitments in the region prove less solid than assumed.

Alternative Outcomes

The Forced Deal

The primary scenario in this edition of Shifting Sands holds that the diplomatic circuit has closed without a resolution mechanism, leaving the inventory clock as the primary forcing function toward some form of Hormuz reopening - on terms that are likely to be contested, partial and difficult for markets to trust.

The alternative path is a forced deal - not a diplomatic breakthrough, but a convergence driven by simultaneous pressure on both sides that arrives faster than the base case implies. As OECD commercial inventories approach operational stress levels in early June, oil prices spike sharply toward the $150 level JPMorgan has identified as the point where the market stops moving gradually and lurches - a sudden, disorderly jump rather than a steady climb. That spike hits the US equity market - the indicator Ferguson has identified as Tehran’s target - and the political pressure on Trump becomes acute ahead of the November 2026 midterms. Simultaneously, Iran’s domestic position deteriorates faster than its negotiating posture implies - inflation running at rates analysts describe as hyperinflationary, acute shortages and oil storage approaching capacity. A regime that has calculated it can outlast Washington’s political clock finds both clocks running faster than anticipated.

In this scenario, Pakistan’s mediation channel delivers a framework agreement before the inventory floor is breached - probably in late June. The agreement is deliberately ambiguous on the Persian Gulf Strait Authority and toll questions, allowing both sides to claim consistency with their stated positions. Hormuz partially reopens. Markets rally sharply.

The commercial implication of this alternative path is not relief but recalibration. A forced deal made under duress will be fragile, unverified and likely to fracture within months - replicating the managed drift pattern but with a market that has already priced resolution. The repricing on the downside, when the deal’s fragility becomes apparent, could be sharper than the original shock. For investors, a forced deal is a moment to reduce risk exposure rather than add it.

Closing Thoughts

The central error in how this crisis is being read commercially is the assumption that resolution restores the status quo. It does not. The Persian Gulf Strait Authority is not a bargaining position - it is a bureaucratic institution being built. Insurance markets have already moved their floor. Corporate decision-makers are hardening bypass infrastructure on the assumption of a permanently elevated risk premium. The Panama Canal has added capacity it expects to keep.

These are not temporary responses to a temporary shock. They are the first visible layer of a new trade geography whose full shape will take years to emerge. For operational leaders, the immediate priority is mapping Hormuz-dependent exposure precisely - not at the level of direct energy purchases but at the level of inputs, logistics dependencies and counterparty concentration across the supply chain. The emergency ceiling on bypass infrastructure means there is no further shock-absorber. The next disruption - diplomatic, military or physical - hits a system already running at maximum adaptation.

For investors, the more durable opportunity is in the adaptation infrastructure itself: the ports, pipelines, insurance capacity and routing networks being built around the new reality. The question is not when Hormuz reopens. It is who profits from the world building around the possibility that it does not.

The war has demonstrated, at enormous cost, that the global economy’s dependence on a single narrow waterway was a vulnerability hiding in plain sight. That lesson, once learned, does not un-teach itself.

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References

Kaneva, Natasha and Nasser, Amin. JPMorgan / Saudi Aramco. Quoted in: Ratcliffe, Verity. Financial Times: ‘Saudi Aramco warns fuel stocks heading for critically low levels,’ 11 May 2026.

Kaneva, Natasha. JPMorgan. Quoted in: Wigglesworth, Robin. Financial Times: ‘The growing risk of a non-linear spike in oil prices,’ May 2026.

Hellyer, H.A. Foreign Affairs: ‘The End of the Axis of Abraham,’ 2026.

Burkhard, Jim and Goldman Sachs. Quoted in: Moore, Malcolm. Financial Times: ‘Global oil reserves plunged at record pace as Middle East war strains supplies,’ 5 May 2026.

Mousavizadeh, Nader. Financial Times: ‘We are living in the age of asymmetry,’ 12 May 2026.

Ferguson, Niall. Hoover Institution. Goodfellows, Hoover Institution broadcast, 11 May 2026.

Vial, Victor. Panama Canal Authority. Quoted in: Webber, Jude. Financial Times: ‘Iran war boosts Panama Canal revenues by up to 15%,’ 10 May 2026.

Financial Times: ‘Bypassing the Strait of Hormuz,’ 5 May 2026.

Wilt, Bob. Maaden. Quoted in: Ballard, Ed and Kantchev, Georgi. Wall Street Journal: ‘The new route around Hormuz involves a massive convoy of trucks,’ 12 May 2026.

Rakshit, Suvodeep. Kotak Institutional Equities. Quoted in: Kaushik, Krishn. Financial Times: ‘Investors dump Indian assets as energy shock sends rupee sliding,’ 8 May 2026.

Kagan, Robert. The Atlantic: ‘Checkmate in Iran,’ 10 May 2026.

Financial Times: ‘The Iran war dilemma for central bankers,’ 12 May 2026.

England, Andrew. Financial Times: ‘Saudi Arabia floats Middle Eastern non-aggression pact with Iran,’ 14 May 2026.

García-Herrero, Alicia. Bruegel: ‘Beijing to push Trump on Taiwan, with potentially global consequences,’ 8 May 2026.

Rudd, Kevin and Gilholm, Andrew. Asia Society / Control Risks. Quoted in: Politi, James. Financial Times: ‘What did Donald Trump achieve in talks with Xi Jinping,’ 15 May 2026.

• In April, Brent crossed $126 a barrel as Trump signals the Hormuz blockade could run for months, with Goldman Sachs warning of nearly $120 average prices in Q4 under an adverse scenario that now looks like the base case

• A shared energy shock is pulling central banks in opposite directions - the ECB and Bank of England toward tightening, the Fed toward cuts

• Gulf sovereign wealth funds are reorienting away from global dealmaking toward domestic resilience, with $106 billion in pending cross-border transactions now in doubt

• The UAE’s exit from OPEC, combined with Iron Dome deployment and independent capital investment in bypass infrastructure, marks the most significant fracture in Gulf institutional cohesion in a generation

• Iran’s internal consensus that Hormuz control is a permanent strategic asset - not a temporary wartime measure - means any deal short of a comprehensive settlement leaves the global energy system structurally exposed

Context

Eight weeks after US and Israeli forces launched their campaign against Iran, a ceasefire nominally holds but the Strait of Hormuz remains all but closed. Traffic through the waterway - which before the conflict carried a fifth of the world’s oil and liquefied natural gas (LNG) exports and meaningful shares of sulphur, chemicals, fertiliser feedstocks and aluminium - has collapsed to roughly five per cent of normal flows. Iran controls passage through the strait under Islamic Revolutionary Guard Corps (IRGC) supervision. The US Navy maintains a parallel blockade of Iranian ports. The result is what the shipping industry calls a double blockade - Iran dictating passage terms through the IRGC while the US Navy intercepts vessels linked to Tehran, leaving commercial operators caught between both.

A second round of peace talks in Islamabad collapsed before it began. The US cancelled its negotiating delegation on 25 April. Iran’s foreign minister had already left Pakistan hours before the cancellation was announced. A subsequent Iranian proposal, submitted through Pakistani mediators on 30 April, was rejected by Trump as insufficient. The gap between the two sides on nuclear enrichment, Hormuz governance and missile programmes remains as wide as it was at the start of the conflict.

Markets have stopped treating this as a crisis with a near-term exit. The question is no longer when the disruption ends but how much structural damage accumulates before it does.

Energy Security & Supply Chain Exposure

The scale of the supply disruption is without modern precedent. The initial loss of oil supply in March - 10.1 million barrels per day - exceeded every previous shock in the recorded history of the market, larger than the 1973 Arab embargo, the Iranian revolution of 1979 and Saddam Hussein’s invasion of Kuwait in 1990. By 5 March, daily tanker transits had collapsed from around 60 to near zero. Brent crude, which stood at approximately $75 before hostilities began, crossed $126 on 29 April - a 68 per cent increase in eight weeks.

The commodity price movements tell their own story. By 20 April, Singapore jet fuel had doubled in price, urea was up 85 per cent and Asian LNG futures up by 46 per cent - a cascade of cost shocks that has grounded aircraft, emptied fuel reserves and upended agricultural planning simultaneously. Lufthansa cancelled 20,000 short-haul flights through October. Delta Air Lines cut routes to recoup $1 billion in costs. The International Energy Agency warned that European jet fuel stocks had fallen to less than six weeks of supply - a figure that concentrates the mind when summer travel season is weeks away.

The refining picture compounds the problem. Singapore’s facilities, the region’s primary hub for jet fuel and petrochemicals, are running at below half capacity - the lowest since the pandemic. Across Asia more broadly, output has fallen from over 80 per cent of capacity before the war to 70 per cent in March and April, dragging jet fuel exports to a five-year low. The economics have inverted: product prices remain high, but extreme freight costs and crude procurement premiums have destroyed refining margins, leaving many operators with a rational incentive to produce less rather than more.

The food security dimension is equally pressing, and less discussed. Gulf producers supply close to half of global urea exports, making the strait a food security chokepoint as much as an energy one. Since the end of February, both urea prices and US farm diesel have risen by over 45 per cent - hitting farmers already operating on thin margins. The American Farm Bureau Federation reports that roughly seven in ten survey respondents can no longer cover their full fertiliser requirements. The purchasing power illustration is stark: a tonne of urea now costs a US corn farmer 185 bushels of his own crop - the highest ratio on record. Food prices have so far risen only modestly, but that reflects 2025 carryover stocks absorbing the shock - stocks that will not repeat. The World Bank flags 2027 as the point of greater difficulty.

The world is not without alternatives. The World Bank has mapped a partial substitution of roughly 15.4 million barrels per day through alternative pipelines, inventory drawdowns and incremental production elsewhere - but that still leaves a residual shortfall of 4.6 million barrels per day. Inventories are the only remaining cushion, and they will not last indefinitely. If they are exhausted before the strait reopens, that supply gap widens toward eight per cent of global daily consumption with nothing left in reserve. Beyond the immediate shortage, Goldman Sachs estimates 500,000 barrels per day of permanent scarring to Gulf production capacity, primarily in Iraq - damage that no diplomatic agreement, however comprehensive, will undo.

Outlook

The major banks have attempted to map the range of outcomes. Goldman Sachs projects Brent averaging $90 in Q4 if Gulf exports normalise by end of June - rising to nearly $120 if normalisation slips to end of July and Gulf production capacity suffers lasting damage beyond what reopening recovers. Morgan Stanley projects Brent at $110 in Q2, declining toward $80 by 2027. Both forecasts now look optimistic. Trump stated on 29 April that he has no intention of lifting the blockade until Iran agrees a final nuclear deal. Iran’s First Deputy Parliament Speaker and Supreme Leader Khamenei have both framed Hormuz control as a permanent Iranian right. These are not negotiating positions - they are declared policy on both sides. The strait is no longer a crisis variable. Any capital allocation model assuming a rapid return to pre-February shipping norms is working from the wrong premise.

Recovery timelines are longer than markets assume. Red Sea shipping volumes remain 60 per cent below pre-2023 levels despite an enduring Houthi ceasefire. TotalEnergies needed four years to resume its Mozambique LNG project after a 2021 attack. Insurance reinstatement alone takes months - the physical restart sequence has barely begun. Supply chain planners should note that fertiliser price recovery lags strait reopening by one to one and a half years, as per US farmers’ own estimates - meaning agricultural input cost pressures will persist well into 2027 regardless of when a deal is struck. The aviation sector faces parallel structural risk - European jet fuel stocks below six weeks, Asian jet fuel exports at five-year lows, airline hedging books under stress. Further capacity cuts beyond those already announced are likely by midsummer.

Currency, Sanctions & Capital Risk

The financial architecture underpinning global energy trade is under more pressure than headline oil prices suggest. Three separate but connected dynamics are running simultaneously.

The first is the bond market’s verdict on inflation. On 29 April, the 30-year US Treasury yield hit 5 per cent for the first time since last summer, with European sovereign bonds selling off in parallel - markets pricing a world in which energy costs stay elevated for longer than governments are willing to admit. The ECB has signalled a rate rise as more likely than not in June. The Bank of England has warned of forceful tightening if pressures persist. The US Personal Consumption Expenditures (PCE) index - the Federal Reserve’s preferred inflation measure - has reached 3.5 per cent, its highest in nearly three years. Germany, meanwhile, is heading for a fourth consecutive year of economic stagnation - a country that entered this crisis already weakened and is now absorbing an energy shock it did nothing to cause.

The Fed, by contrast, has held rates with a dovish lean, creating a transatlantic monetary policy divergence that has direct implications for dollar strength, capital flows and hedging costs. Gillian Tett, the FT’s chair of editorial board, has identified a second risk: the weaponisation of dollar swap lines. The UAE and other Gulf and Asian governments have requested dollar swap lines from the US Treasury - not the Federal Reserve - following a quiet power shift engineered by Treasury Secretary Scott Bessent. Under the new arrangement, swap lines would be deployed as instruments of geopolitical alignment rather than financial stability tools, raising the question of whether European central banks can rely on Washington’s backstop in a future crisis.

The second dynamic is quieter but structurally significant: the acceleration of renminbi internationalisation. Offshore renminbi bond issuance has reached Rmb300 billion ($44 billion) so far this year, more than double the equivalent period in 2025. Goldman Sachs has become the largest foreign issuer of these so-called dim sum bonds - not out of ideological conviction but yield arithmetic, swapping proceeds back into dollars while exploiting China’s lower borrowing costs. Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, describes offshore renminbi as having become “a major funding currency for lack of a better option” as rising Japanese yields have diminished the yen’s traditional role. Beijing is not a passive beneficiary. Central bank governor Pan Gongsheng committed at the China Development Forum in March to expanding the offshore renminbi market, and the Bond Connect programme has been opened to insurers and non-bank institutions for the first time. Opportunistic arbitrage is being converted, deliberately, into structural market depth.

China’s position in this crisis adds a further complication. It is simultaneously the world’s largest buyer of Iranian oil, the primary destination for Gulf energy exports, the dominant supplier of solar panels and batteries driving the global energy transition and the source of cheap capital refinancing the Gulf’s economic diversification. Its exposure to the oil shock is not, however, straightforwardly damaging. At moderate price levels, energy cost advantages shift relative competitiveness toward Chinese manufacturers and away from rivals with greater fossil fuel dependence. Push prices high enough for long enough, and that calculus reverses sharply. At current levels, China sits uncomfortably between those two outcomes.

The third dynamic concerns Gulf sovereign wealth funds (SWFs). PitchBook data puts at least $106 billion in unclosed North American and European transactions at risk from Gulf capital reassessment. Qatar faces an 8.6 per cent GDP contraction this year as per the IMF - a figure that predates the Iranian attack on Ras Laffan, whose export losses are estimated at $20 billion annually for up to five years, against a government revenue budget of $54 billion. A Goldman Sachs projection from March estimated Saudi Arabia and the UAE could see 2026 GDP shrink three to five per cent if conflict persisted through April - a figure since overtaken by events and now likely understated. The reorientation of Gulf SWF strategy - away from discretionary global growth assets toward domestic resilience, defence and food security infrastructure - is already underway.

Outlook

The transatlantic monetary policy divergence is the most immediate capital allocation signal from this crisis. A Fed leaning dovish while the ECB and Bank of England move toward tightening implies dollar softness, European rate volatility and compressed spreads in dollar-denominated assets - a combination that reshuffles the relative attractiveness of asset classes across jurisdictions. Treasury desks that have not stress-tested hedging books against a six-to-twelve month disruption scenario are exposed. The deeper structural question concerns the $14 trillion eurodollar system. Brendan Greeley has argued that its foundations remain robust - but its resilience ultimately depends on Fed willingness to extend swap line protection to offshore dollar markets. That willingness is now a political variable in ways it has never previously been, and no financial model has yet priced that risk adequately.

Gulf SWF retrenchment will be felt unevenly. Sectors that benefited most from Gulf capital in 2024 and 2025 - AI infrastructure, entertainment, financial services - face a reduced supply of patient capital precisely as tech valuations are supported by Wall Street’s strongest monthly rally since 2020. That divergence between equity market optimism and geopolitical reality historically does not persist.

Trade & Investment Architecture

Beneath the immediate crisis lies a structural shift that will outlast it. For three decades, global markets operated on a simple premise: equivalent goods should trade at equivalent prices, regardless of where buyers and sellers are located. Free trade agreements, integrated supply chains and standardised rules reinforced that convergence until it felt like gravity. It is now in retreat - pulled apart by sanctions, economic nationalism and the physical reality that critical maritime chokepoints can be closed by a single adversary in a matter of days.

The evidence is visible in price spreads. Crude of comparable quality is now trading at gaps of $50 or more between Texas, Guyana, the North Sea and Russia - some of the largest differentials on record. At Panama, daily auction prices for the busiest shipping locks have averaged $837,500 - a tenfold increase since February, as Asian buyers compete frantically for US Gulf Coast supply. Capital is already responding. The UAE-Jordan railway deal announced in late April - $2.3 billion to connect Jordan’s phosphate and potash mines to the Port of Aqaba - is not a crisis response. It is a strategic bet on land-based trade corridors that move goods without tankers, container ships or the need to transit a strait. Designed to link northward through the revived Hejaz Railway, it is the first significant infrastructure investment built explicitly as a hedge against Hormuz dependency.

The institutional fragmentation at OPEC is the clearest single indicator of the directional shift. The UAE’s departure - announced while Gulf leaders met in Jeddah without UAE President Mohammed bin Zayed present - is explicitly a political act as much as a commercial one. As Raad Alkadiri of the Center for Strategic and International Studies observed, “this smacks of a political motive far more than an oil market motive.” Iran’s effective veto over OPEC production through Hormuz control - the organisation’s flows held hostage by a non-member - has exposed the cartel’s structural vulnerability in a way that years of compliance debates never did. Russia’s finance minister has warned that the UAE’s unconstrained post-war production capacity of 4.5 million barrels per day could trigger a price war once the strait reopens, with Moscow already budgeting for lower oil prices for at least three years.

Libya is the clearest example of how fragmentation creates structural beneficiaries. Production at 1.43 million barrels per day, the highest in over a decade, benefits from Mediterranean export terminals outside the crisis zone, a light-sweet crude profile favoured by European refiners and an OPEC quota exemption allowing uncapped output increases. Libya’s GDP is projected to grow 6.7 per cent this year, one of the few upward revisions in the IMF’s latest regional outlook. The first licence awards since 2007, to Chevron, Eni, QatarEnergy and Repsol, signal that international capital is already repositioning toward non-Hormuz supply.

The EU’s reconsideration of its Arctic drilling moratorium - a flagship climate commitment since 2021 - is perhaps the most politically significant second-order consequence of the crisis. Discussions remain at an early stage and the Commission has declined to comment formally, but multiple officials confirm the policy reversal is under active consideration. A formal retreat would mark a significant EU fossil fuel policy retreat - part of a broader pattern of Western climate commitments buckling under the pressure of a single Gulf crisis. It would most directly benefit Norway, which has positioned itself since 2022 as the democratic supplier of choice for European gas and is now leveraging the Iran crisis to extract a concession that years of lobbying failed to secure.

Outlook

The law of one price will not recover simply because the strait reopens. The land corridors, alternative pipelines and renegotiated supply contracts being built to route around Hormuz embed the fragmentation regardless of diplomatic outcomes. There is a further reason to expect the differentials to persist: the trading houses and bank dealing rooms already extracting $140 billion per year from price fragmentation have little structural incentive to see them close.

For operational leaders, the key shift is the premium now attached to supply chain optionality. Single-source procurement models carry a risk that did not exist before February 2026. Companies that pre-positioned diversified supplier relationships - across geography, transport mode and pricing currency - are structurally better placed than those that did not, and no rapid fix is available to close that gap. Investors in European renewables should note the political economy risk: the same crisis that strengthens the commercial case for energy independence is simultaneously generating pressure to delay the transition that would achieve it.

Political Instability & Civil Unrest in Key Markets

The Iran-US confrontation has dominated headlines. The more consequential story for medium-term regional stability is what is happening within the Gulf itself. The crisis has not unified the Gulf Cooperation Council (GCC) - it has exposed and deepened fault lines that were already present, and in some cases made them structural.

Maria Fantappie and Vali Nasr have provided the clearest structural account of Saudi Arabia’s position. Riyadh is hedging between two unacceptable outcomes: accepting Israeli hegemony over the Middle East or tolerating a permanently emboldened Iran. It is building a new regional security architecture around a quartet - Saudi Arabia, Egypt, Pakistan and Turkey - with Pakistan serving as mediator, Turkey bringing NATO membership and Egypt providing additional military weight. The Ukraine-Saudi drone defence deal, signed in late March, is the first concrete indication that Riyadh is sourcing defence technology from outside its traditional partners.

The Saudi-UAE fracture runs through every dimension of the crisis. In the weeks since hostilities began, the UAE has attacked Iranian oil facilities, deployed Israeli Iron Dome batteries on its territory, skipped the Jeddah security summit and exited OPEC - moves that collectively amount to a unilateral redefinition of Emirati foreign policy. Saudi Arabia, meanwhile, has pursued de-escalation and hedging. The deletion of critical Saudi social media posts about the UAE signals a relationship under genuine strain but one Riyadh is not yet ready to rupture publicly. Abu Dhabi has drawn its own conclusions: the old model of collective restraint, OPEC discipline and deference to Riyadh served Saudi interests more than Emirati ones. Greater strategic weight, it has decided, comes from maximising production, deepening the Israel security relationship and investing unilaterally in land corridor infrastructure - not from institutional loyalty.

Iran’s own strategic calculus has hardened through the conflict. Iranian strategists have concluded that earlier assertion of Hormuz control would have made decades of sanctions and the current war unnecessary - a lesson Tehran intends to exploit going forward. The internal consensus, visible in the Supreme Leader’s channel framing and parliamentary statements, is that Hormuz is a permanent asset, not a wartime instrument to be traded away at the negotiating table. The historical model Tehran has in mind is Egypt’s management of the Suez Canal: a sovereign infrastructure toll that generates revenue and political leverage simultaneously. That ambition will not go unchallenged. Any arrangement legitimising Iranian sovereignty over an international waterway faces resistance from the shipping industry, from Japan, South Korea and India as major dependent economies and from Saudi Arabia, which has its own equities in free navigation.

Outlook

The most under-priced political risk is not re-escalation - it is managed drift. Trump’s incentive structure points toward a declared victory: some combination of Iranian gestures on nuclear enrichment, a partial Hormuz arrangement and a claim that the blockade worked, followed by withdrawal of active engagement. What that leaves behind is a Gulf in which Iran retains Hormuz leverage, the Saudi-UAE fracture has institutionalised, OPEC’s price management architecture has weakened and the Saudi-Egypt-Pakistan-Turkey quartet has become the primary regional security framework - one in which Washington has diminishing influence and dwindling credibility.

For businesses with Gulf operations, the immediate priority is insurance and shipping contract review. Coverage terms, force majeure clauses and alternative routing costs should be stress-tested against six to twelve months of current conditions - not a May resolution. The GCC fracture means risk profiles differ materially by emirate: UAE’s deeper Israel alignment creates higher operational and reputational exposures than Qatar’s or Oman’s engagement-oriented positioning. Beyond the Gulf, the cancellation of President Lai Ching-te’s Africa trip - forced by Beijing’s overflight pressure on three Indian Ocean nations - illustrates how China is applying indirect coercion under cover of the crisis. For multinationals with Taiwan exposure, the signal is that Beijing is systematically narrowing Taiwan’s external relationships without a military trigger - a slow squeeze rather than a sudden shock.

The World Without a Deal

The central scenario in this edition of Shifting Sands is that the negotiating window is narrowing faster than the parties are moving. Iran is not softening its position on Hormuz or nuclear enrichment. Trump’s domestic political incentive - midterm elections in November, petrol at $4.23 per gallon and Republican Senate seats under pressure - should theoretically accelerate a deal. But the same dynamic that creates urgency also tempts a performative resolution: a framework agreement that papers over the unresolved issues and allows both sides to claim victory while leaving the structural questions unanswered.

The alternative is not military re-escalation. It is managed drift: a ceasefire that neither side formally abandons but neither converts into a settlement. Iran keeps Hormuz under control. The US maintains its blockade. Oil stays above $100. The insurance market for Gulf shipping does not normalise. Asian refineries run below capacity. European energy policy continues its quiet retreat from climate commitments. And the global economy adjusts - but adjusts downward, absorbing a permanent cost of geopolitical fragmentation that did not exist before February 2026.

This outcome is arguably more likely than either a comprehensive deal or full re-escalation. It is also the outcome markets are least prepared for. Long-dated Brent futures are pricing oil at approximately $85.80 in December - a market that still believes resolution is coming. If the deadlock persists through summer, that expectation will be revised sharply. The trading houses and bank dealing rooms already extracting $140 billion per year from price fragmentation are, structurally, beneficiaries of continued disorder. The world’s farmers, airlines, Asian refiners, European manufacturers and Gulf sovereign wealth funds are not.

Closing Thoughts

Two decisions matter most for business leaders navigating the next ninety days.

The first is supply chain structure. The assumption of Hormuz normalisation by mid-year is still embedded in most corporate planning models. It should be removed. Trump’s explicit statements, Iran’s hardening position on strait governance and the structural lag in insurance and shipping recovery mean that supply chains built around Gulf transit will face elevated costs and uncertainty well into 2027. The question for operational leaders is not whether to hedge but how much structural rerouting to commit to permanently.

The second is Gulf capital exposure. The reorientation of sovereign wealth fund deployment - from global growth assets toward domestic resilience and strategic sectors - is not a temporary retrenchment. It reflects a durable reassessment of the oil-for-security bargain that has underpinned Gulf external investment since the 1970s. Businesses and funds that have priced Gulf capital as reliable and undirected need to update that assumption. The capital is still there - but it is being deployed with greater strategic intent and toward different destinations than before.

The 1973 oil crisis accelerated North Sea development, Alaskan pipeline construction and larger tanker fleets before eventually restructuring global energy supply chains. The current crisis will produce its own adaptations - the Aqaba railway, Arctic drilling reconsideration, solar deployment acceleration, land corridor investment across the Levant. But adaptation takes time that the immediate crisis does not offer. The gap between the pace of geopolitical events and the pace of structural adjustment is where the real damage accumulates.

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References

Wolf, Martin. Financial Times: ‘The great commodities disruption,’ 29 April 2026.

World Bank. Commodity Markets Outlook, April 2026.

Fantappie, Maria and Nasr, Vali. Foreign Affairs: ‘Can Saudi Arabia Keep Hedging? The Iran War Has Altered the Gulf’s Balance of Power - and the Kingdom’s Calculus,’ 20 April 2026.

Goldman Sachs. Commodity research note cited in Financial Times, 27 April 2026.

Young, Karen E. Foreign Affairs: ‘A Post-American Persian Gulf? The Iran War Will Accelerate the Region’s Economic Transformation,’ 1 April 2026.

Tett, Gillian. Financial Times: ‘The danger of weaponising dollar swap lines,’ 24 April 2026.

Danon, Eitan and Kram, Josh. Riyalpolitik: ‘RP5: The UAE Walks Out of OPEC,’ 30 April 2026. https://www.riyalpolitik.com/p/the-riyalpolitik-5-318

Greeley, Brendan. Financial Times: ‘There’s no such thing as the petrodollar,’ 25 April 2026.

Alkadiri, Raad. Cited in Financial Times: ‘The beginning of the end of Opec,’ 29 April 2026.

Sandlund, William. Financial Times: ‘Goldman Sachs leads record renminbi borrowing by US banks,’ 24 April 2026.

Foulis, Patrick. Financial Times: ‘The golden age of arbitrage has begun,’ 24 April 2026.

Chassany, Anne-Sylvaine. Financial Times: ‘US being humiliated by Iran, says German Chancellor Friedrich Merz,’ 27 April 2026.

Context

On 28 February 2026, the United States and Israel launched strikes on Iran. Seven weeks later, the Strait of Hormuz, through which approximately 20 percent of global oil and liquefied natural gas (LNG) normally passes, remains under Iranian military control. A fragile two-week ceasefire announced on 8 April has frayed almost immediately. The US has imposed a naval blockade of Iranian ports. Peace talks in Islamabad collapsed without agreement. And this morning, Iran’s Islamic Revolutionary Guard Corps (IRGC) formally declared, in its own words, that the strait has returned to “its previous state” - strict military management, with all commercial vessels required to obtain authorisation and pay tolls before moving through designated routes.

The immediate disruption, including energy price spikes, shipping rerouting and equity market volatility, has attracted most of the attention. But the deeper story is structural. The conflict has not created a crisis that will pass once a ceasefire holds. It has compressed into seven weeks a set of transitions in trade architecture, financial plumbing and strategic alignment that were already underway, making visible and irreversible what was previously gradual and deniable.

For executives and investors, the relevant question is no longer when things return to normal. It is what the new normal looks like, and how to position for it.

Energy Security & Supply Chain Exposure

The scale of physical damage to Gulf energy infrastructure is only now becoming fully visible. JPMorgan’s energy analysts - Natasha Kaneva, Lyuba Savinova and Artem Fakhretdinov - have produced the most systematic accounting of the damage to date: more than 60 Gulf energy infrastructure assets struck, roughly 50 of them with measurable consequences. At least eight are severely impaired. Approximately 2.4 million barrels per day (b/d) of refining capacity is shut in across 20 affected plants. JPMorgan’s repair assessment divides the offline capacity into three tranches: roughly 900,000 b/d recoverable within weeks, a further 800,000 b/d requiring approximately a month and a final 700,000 b/d, anchored by Bahrain’s Sitra facility and Iran’s Tehran refinery, with no near-term restoration timeline.

Qatar’s Ras Laffan Industrial City, the world’s largest LNG export hub, sustained the most consequential single hit. QatarEnergy has confirmed the damage will affect approximately 17 percent of its exports and take three to five years to repair - a timeline that encompasses an entire investment cycle for major industrial buyers. Iraq’s oil production collapsed from 4.3 million b/d before the war to just 800,000 b/d last month, its near-total dependence on Hormuz transit leaving it with no meaningful alternative. Saudi Arabia confirmed production capacity cuts of 600,000 b/d from attacks on Manifa and Khurais, alongside a 700,000 b/d throughput loss on the East-West pipeline, struck hours after the ceasefire was announced. This pipeline has since been restored to full capacity, but Khurais repairs continue.

The supply shock is now transmitting well beyond the Gulf. The International Energy Agency (IEA) reported on 14 April that global oil demand fell 3.4 percent in March - a contraction matched only by the pandemic and the years immediately preceding the 2008 financial crisis. Demand is expected to fall a further 1.1 percent in April to 100.4 million barrels per day, the lowest level in more than three years. The IEA now expects annual oil demand for 2026 to decline - the first such decline, excluding the pandemic, since 2009.

Approximately 13 million b/d of production remains shut in by the conflict. The IEA has orchestrated what it describes as a record coordinated release of strategic reserves - 400 million barrels in total. A further 205 million barrels have been drawn from non-Gulf inventories, consuming the equivalent of roughly two days of global oil consumption. The buffer the world had against further supply shocks has been severely eroded.

The cascading effects are appearing in specific industries and geographies at speed. European airports face systemic shortages of jet fuel within three weeks if Hormuz does not fully reopen, according to a formal letter from Airports Council International Europe (ACI Europe) to the EU transport commissioner. The strait handles approximately 40 percent of global jet fuel supply and benchmark prices have more than doubled since the conflict began. The approach of peak summer travel season amplifies the pressure. Delta Air Lines has already cut capacity by 3.5 percent and projects $2 billion in additional fuel costs between April and June.

Singapore, the world’s largest bunkering port, has seen its marine fuel inventories fall to a 10-week low, with fuel supplies being rationed, prioritising established customers and rejecting spot buyers. The average dwell time of ships at the port has risen from 3.5 days at the outbreak of the conflict to 5.1 days and Brazil has replaced the Middle East as Singapore’s primary fuel supplier. China relied on the Middle East for approximately one-third of its oil and 25 percent of its gas imports before the war. Peng Shaozong, a former official at China’s National Development and Reform Commission (NDRC), Beijing’s top macroeconomic planning body, has warned in an unusually candid policy paper that input costs across China’s most energy-exposed industries, including steel, shipping and logistics, have risen as much as 25 percent. Domestic spot prices for high-grade helium have surged 110 percent since the conflict began, disrupting semiconductor and medical technology supply chains that depend on Gulf-sourced industrial gases.

Outlook

The physical damage to Gulf energy infrastructure will not be repaired by a ceasefire. Ras Laffan’s three-to-five-year repair timeline is the defining figure: it means the LNG market will operate with structurally reduced Qatari supply through the remainder of this decade regardless of how quickly diplomacy resolves the immediate conflict. European buyers who have spent years building LNG import infrastructure around Qatari volumes now face a forced diversification that will accelerate US LNG export investment, lock in long-term contracts with alternative suppliers and permanently reshape European energy import architecture.

Jorge León, head of geopolitical analysis at Rystad Energy, has placed a minimum six-month recovery floor on global energy markets even under an immediate, durable reopening - with some damage scenarios extending that timeline further. That six-month floor is the minimum disruption scenario. The Hormuz situation as of this morning is materially worse: the IRGC’s formal declaration of a new maritime regime, requiring authorisation and toll payment for all commercial vessels, is not a negotiating position. It is a declared operational policy backed by the new supreme leader and announced by the head of Iran’s National Security Committee. Shipping companies, insurers and energy buyers must now plan against a baseline in which Hormuz transit carries permanent additional cost, permission risk and political exposure, regardless of how the peace talks develop.

For companies with Gulf supply chain exposure, the strategic response is already visible in what the market is doing rather than what analysts are recommending. Singapore's bunkering shift from Middle East to Brazilian supply, the rerouting of Gulf diverted trade through Saudi and Omani alternative ports - with Singapore emerging as the third-largest global recipient of diverted cargo - these are not crisis responses. They are infrastructure habits forming under pressure, and habits formed under pressure are the most durable. Supply chain managers who have already built the logistics relationships, negotiated the alternative contracts and validated the alternative routes have sunk costs in those systems. A Hormuz reopening does not automatically make those investments redundant; it makes them optional.

The toll question is the medium-term structural issue that most demands attention. A Hormuz toll, taken in isolation, need not be commercially prohibitive. Suez and Panama demonstrate that toll regimes can be absorbed as a cost of doing business once they are stable and predictable. The relevant comparison, however, is not the toll in isolation but the risk-adjusted total cost of transit: toll plus war-risk insurance premium plus probability of seizure or delay plus reputational and sanctions compliance exposure. At current conditions, that total cost is not predictable or stable. Until it is, the economics of alternative routing will remain more attractive than they were before 28 February. Every week that remains true, the alternative infrastructure becomes more embedded and the switching cost of reverting to Hormuz transit rises.

Trade & Investment Architecture

The conflict has accelerated a reconfiguration of global trade infrastructure that was already underway but had been moving at the pace of strategy papers and summits. What Badr Jafar, the UAE’s special envoy for business and philanthropy, described in early April as the beginning of the end for a 50-year trade model is now visible in satellite images, ship tracking data and corporate investment announcements.

The physical layer of the new architecture is being built around Hormuz rather than through it. Saudi Arabia’s east-west pipeline capacity of 7 million b/d and Oman’s major ports at Duqm, Salalah and Sohar outside the chokepoint are all operational and under increased demand. Trade corridors that were theoretically available but underutilised before February are now carrying real volumes. These are not emergency workarounds. They are the early physical expression of a permanent diversification investment cycle that Gulf governments and multinationals will fund over the next decade.

The financial layer of the new architecture is equally significant and less visible. Iran has collected transit fees in cryptocurrency, denominating charges at $1 per barrel of oil transported - operationalising the parallel payment infrastructure that Daniel Davies, writing in the Financial Times, identified as the dollar weaponisation problem’s logical endpoint. The Iranian economy has demonstrated in real time that the parallel architecture exists and works: hydrocarbons sold for renminbi, payments processed through institutions that accept sanctions exposure, and Hormuz transit now priced in cryptocurrency that US regulators cannot reach. The mechanisms that were described as theoretical alternatives to dollar dominance in 2022 are now the actual operating infrastructure of the world’s most sanctioned major economy.

Andy Haldane, former Chief Economist of the Bank of England, has argued that the global trading system is more likely to follow the path of post-2008 global finance than the 1930s trade collapse - resilient rewiring rather than catastrophic rupture. When the old credit channels failed after 2008, capital found new ones - and the rebuilt financial system proved more durable under subsequent stress than its predecessor had been. The parallel for trade is exact and the mechanism is already visible - in Haldane’s words, rapid rerouting is now ‘muscle memory’ for companies and nations. Trade volumes rose through Trump’s tariff shock. The same adaptive capacity is being deployed now, at higher speed and under greater pressure.

Outlook

The Bretton Woods framework established in 1944 created the institutional architecture, the International Monetary Fund, fixed exchange rates, dollar reserve primacy, multilateral trade rules, through which the post-war global economy operated. That architecture has been under strain for years: the dollar’s weaponisation as a sanctions instrument, the fragmentation of multilateral trade governance through the World Trade Organization (WTO), the rise of regional payment systems and the slow erosion of US institutional dominance. The Iran conflict has not initiated that transition. It has compressed it.

The IMF’s own April World Economic Outlook reaches for the language of its founding. The institution describes itself as having been born from “a vision forged in the aftermath of war” to advance cooperation for the benefit of all, and states that those founding principles are now more vital than ever. That is not institutional preamble. It is the organisation that emerged from Bretton Woods recognising, in its own words, that the settlement it was built to sustain is under the most serious strain since it was constructed. Institutional investors are openly questioning whether the US dollar can still be considered the world’s risk-free asset - an assumption that has underpinned global capital allocation since Bretton Woods.

The trade architecture implication for C-suite decision-makers is that the mapping of global supply chains built on pre-conflict assumptions is now a liability rather than an asset. The relevant strategic question is not whether to diversify away from single-route dependencies - that is settled. It is which of the emerging alternative architectures to invest in, at what scale and with which partners. The Gulf corridor infrastructure described by Jafar, the alternative financial rails identified by Davies and the trade rerouting dynamics documented by Haldane are not three separate phenomena. They are three layers of the same structural transition.

Currency, Sanctions & Capital Risk

The Iran conflict has done more to demonstrate the limits of dollar weaponisation than any previous episode since the system was constructed. Russia’s exclusion from the Swift messaging system in 2022 was understood at the time to be more inconvenient than terminal for Moscow’s economic functioning. The Iranian case has been more instructive: one of the most heavily sanctioned economies in the world has successfully closed the world’s most important energy chokepoint, collected cryptocurrency transit fees, and continued exporting oil for renminbi, all while under a sanctions regime nominally covering the entire Iranian economy.

Davies observed that sanctions are most effective against open, integrated economies - the ones that rarely need threatening. States that have been forced to develop workarounds become skilled at using them. The broader implication, which is now being priced by institutional capital, is that the dollar’s power as a geopolitical weapon has been most visibly exercised precisely at the moment that alternatives have become most viable.

The market evidence is unambiguous. Ajay Rajadhyaksha, global chair of research at Barclays, put it with precision after the Islamabad announcement: “Ceasefires end wars, but they don’t undo them.” European sovereign two-year yields across the UK, Germany and Italy remain more than half a percentage point above where they traded before hostilities began. The equivalent US Treasury yield has not recovered either, sitting 0.4 percentage points higher than its pre-conflict level. The relief rally has not closed either gap.

Ruchir Sharma, chair of Rockefeller International, has provided the sharpest structural framing: the global economy has entered this crisis with an average government debt-to-GDP ratio among the G7 above 100 percent, against approximately 20 percent at the time of the 1970s oil shocks, and average G7 deficits more than double the 2 percent typical at the time of those earlier shocks. Global debt ended last year at a record $348 trillion - a figure that exceeds three times the value of everything the world produces in a year. The Fed has not hit its 2 percent inflation target in five years.

Outlook

The Fed’s own risk assessment is now public. Christopher Waller, one of the most influential voices on the Federal Reserve’s board of governors, warned on 17 April that successive price shocks risk producing a more lasting inflation problem - explicitly comparing the current situation to the pandemic. He cautioned that a prolonged conflict could trigger a stagflationary scenario in which the Fed would be unable to cut rates from the current 3.5-3.75 percent range even as the labour market weakened. US Treasury Secretary Scott Bessent told the BBC the economic consequences amounted to acceptable short-term pain for long-term security - an explicit acknowledgement that the administration is not managing this conflict with economic stabilisation as a primary objective.

The IMF’s three-scenario framework is the most authoritative guide to the range of outcomes. The reference case - short conflict, moderate 19 percent energy price increase - produces global growth of 3.1 percent and headline inflation of 4.4 percent. The adverse scenario - sharper energy price increases and rising inflation expectations - reduces global growth to 2.5 percent. The severe scenario, with energy dislocations extending into 2027 and financial conditions tightening sharply, takes global growth to 2.0 percent in both 2026 and 2027, bringing the world to the threshold of global recession, a level the IMF notes has been crossed only four times in the past 45 years. IMF chief economist Pierre-Olivier Gourinchas has assessed that even if the conflict ended today, the impact on oil supply would be comparable to the 1970s oil crisis.

The blockade that came into effect on 13 April has materially shifted the probability distribution toward the adverse and severe scenarios. It is not a resolution mechanism. It is an escalation tool that closes the strait to Iranian oil exports while doing nothing to reopen it to everyone else’s. The risk-adjusted implication for treasury and capital allocation is that the period of policy-supported recovery that institutional investors assumed would follow a ceasefire is not the base case. Rate cuts are priced out of 2026 in the US. European sovereign spreads remain elevated. The dollar’s risk-free status is being actively questioned. Companies managing balance sheets, hedging currency exposure or refinancing debt in this environment should expect that conditions will be more constrained for longer than a simple ceasefire timeline would suggest.

US-China Strategic Competition

The Iran conflict has produced the most significant shift in the US-China strategic balance since the pandemic - and it has done so without a single direct confrontation between the two powers.

JPMorgan’s assessment of the military hardware damage is the starting point. Among the most significant losses: a Boeing E-3 Sentry airborne warning and control system worth more than $700 million, multiple AN/TPY-2 radars at $485 million each (three-year production timeline) and no surplus units in storage. Elements of a missile defence system have also been repositioned from South Korea to the Middle East. Tom Karako at CSIS has highlighted the core concern: these are precisely the assets that would matter most in any Pacific contingency, and they are being consumed in the Gulf.

The financial cost is staggering. Estimates place the total campaign cost at between $22.3 billion and $31 billion over five weeks, running at approximately $500 million per day, with the Pentagon now seeking an additional $200 billion from Congress.

Into this environment, Xi Jinping chose on 10 April to receive the chair of Taiwan’s opposition Kuomintang party (KMT) - the first such meeting between a Chinese president and a KMT leader since 2016. All seven members of the Politburo Standing Committee were present as Xi described Taiwan unification as a “historical inevitability.” The timing is not incidental. One month before a scheduled Trump-Xi summit in Beijing, Xi is asserting a maximalist position on Taiwan’s status at precisely the moment when the hardware that would complicate any military calculation is being depleted and repositioned 5,000 miles away.

Outlook

Di Dongsheng of Renmin University has argued that China is following the script the United States played in the early stages of the First World War: profiting from great power exhaustion while avoiding direct involvement. Among major energy importers, China's combination of state-controlled pricing, diversified non-Gulf supply relationships and an accelerating renewables transition gives it more insulation from a Gulf price shock than most of its rivals - meaning higher oil prices improve Chinese manufacturing competitiveness relative to more oil-dependent economies. New energy vehicle exports, battery storage, solar panels and wind equipment are all accelerating. Di's thesis is neither propaganda nor wishful thinking. It is an accurate description of one set of forces.

But Peng Shaozong’s paper from the NDRC, the 110 percent helium price surge and China’s factory gate prices moving into positive year-on-year territory for the first time since 2022 are an equally accurate description of a different set of forces operating simultaneously. China’s supply chain stress is real. Analysts have warned that supply disruptions could ultimately prove worse than during the pandemic. The bifurcation is not a contradiction. It is a threshold argument. Below approximately $130 per barrel sustained over a quarter, China gains competitively. Above it, GDP could fall to 3 percent or below without policy intervention, according to Xing Ziqiang, chief economist at Morgan Stanley China. Current conditions sit between those poles, but the blockade has raised the probability of crossing the upper threshold.

For multinationals with operations or investment exposure in Taiwan-adjacent supply chains - semiconductors, advanced manufacturing, precision components - the strategic signal from this conflict is unambiguous: the deterrence architecture that has kept Taiwan in stable ambiguity since 1979 has been visibly degraded. This does not mean conflict is imminent or inevitable. It means the risk premium on Taiwan-adjacent assets has structurally increased, and the cost of maintaining that exposure without explicit scenario planning and contingency hedging has risen in proportion.

The Managed Settlement

The primary scenario presented in this edition of Shifting Sands holds that the structural rewiring of global trade, energy and financial architecture is irreversible regardless of the conflict’s diplomatic resolution. The stable doors are wide open. But there is a plausible alternative path worth examining: a negotiated settlement reached within the next four to six weeks that produces a durable Hormuz reopening, a framework for Iran’s nuclear programme and a defined sanctions relief pathway.

Under this scenario, the IMF’s reference case - global growth of 3.1 percent, inflation of 4.4 percent - becomes the central outcome rather than a floor. Brent crude returns toward pre-conflict levels over two to three quarters. The Fed gains sufficient confidence in declining inflation to resume cutting rates in early 2027. European sovereign spreads normalise. The scar tissue remains - infrastructure damage, elevated insurance premiums and the embedded memory of supply chain vulnerability - but it becomes a manageable cost rather than a structural constraint.

The commercial implication is materially different from the primary scenario in one respect: the pace of alternative route investment. Under a managed settlement, the economics of Hormuz transit improve relative to alternatives, slowing but not reversing the diversification investment cycle. Companies that have already built alternative logistics relationships retain optionality without urgency.

What makes this scenario less likely than the primary is not the absence of diplomatic will but the structural gap between the parties. The fundamental impasse has not shifted. Iranian negotiators insist on retaining Hormuz control, a position Washington has categorically rejected, while the nuclear terms remain equally unresolved. The blockade that came into effect on 13 April, presented as pressure toward settlement, has instead provided Iran with motivation to maintain the new maritime regime: control of the strait is now Iran’s explicit counter to the blockade, not a separate instrument. Untangling that linkage requires simultaneous concessions that neither side has yet shown the capacity to manage.

What Comes Next

The IMF was created in the aftermath of the Second World War to advance economic cooperation in a world that had just demonstrated what happens when it breaks down. Its April 2026 World Economic Outlook invokes that founding moment explicitly, describing the principles of Bretton Woods as more vital than ever. That is not institutional nostalgia. It is a recognition that the architecture built to prevent economic nationalism, beggar-thy-neighbour trade policy and financial fragmentation is under the most serious strain since it was constructed.

For business leaders making decisions now, the practical translation is this: supply chain maps drawn before 28 February are unreliable. The energy price floor is structurally higher than pre-conflict. Policy support mechanisms - fiscal stimulus, rate cuts, strategic reserve releases - have been drawn down and will be slower to reconstitute than in previous shocks. The dollar’s unchallenged safe-haven status is being actively tested.

The decisions that matter most in the next 90 days are not about whether Hormuz reopens. They are about whether your organisation’s supply chain, treasury and energy cost assumptions have been stress-tested against a world in which the strait operates under an Iranian-controlled toll regime indefinitely, jet fuel availability is constrained through peak summer, and monetary policy offers less cushion than at any point since the 1970s.

The post-war economic order is drawing its last breaths in the Gulf. What replaces it will be built under pressure, at speed and without a conference in New Hampshire.

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References

International Energy Agency. ‘Oil Market Report,’ April 2026.

Judah, Jacob and Mackinnon, Amy. Financial Times: ‘US counts cost of equipment destroyed in Iran war,’ 7 April 2026.

Jafar, Badr. Financial Times: ‘The Gulf is redesigning its trade infrastructure — investors should pay attention,’ 7 April 2026.

Davies, Daniel. Financial Times: ‘Iran war has exposed the weakness of the dollar,’ 9 April 2026.

Haldane, Andy. Financial Times: ‘The case for trade, remade,’ 9 April 2026.

Sharma, Ruchir. Financial Times: ‘The Iran oil shock has exposed a novel vulnerability in the global economy,’ 6 April 2026.

Islam, Faisal and Jordan, Dearbail. BBC News: ‘”Bit of pain” worth long-term security from Iran, Bessent tells BBC,’ 14 April 2026.

International Monetary Fund. ‘World Economic Outlook: Global Economy in the Shadow of War,’ April 2026.

World Bank. ‘Middle East, North Africa, Afghanistan and Pakistan Economic Update: Challenges of Conflict and Industrial Policy for Development,’ April 2026.

• Five weeks into the war, Iran retains the capacity to deny free passage through the Strait of Hormuz, shifting the conflict’s centre of gravity from military degradation to economic coercion

• Oil has surged more than 55 per cent since the war began; Europe faces diesel shortages within weeks and jet fuel rationing by late April; shipping through the Strait has effectively stopped

• The food shock is moving faster than markets have priced: fertiliser supply chains serving the northern hemisphere’s spring planting window are fracturing now, with consequences that will not appear on supermarket shelves until summer

• Gulf sovereign wealth funds are reviewing whether they can defer overseas investment commitments — a quiet signal with loud implications for global capital markets

• Regime change has been effectively foreclosed in the near term: killing Iran’s pragmatic leadership has produced a harder regime, not a more compliant one

Context

Operation Epic Fury began on 28 February as a joint US-Israeli campaign with an objective that was never honestly articulated.

The stated aims shifted as the war progressed: degrade Iran’s military capacity, eliminate its nuclear programme, create conditions for political change. Five weeks later, the campaign has achieved significant destruction. Iran’s conventional military — its air force, navy and missile production infrastructure — has been severely damaged. Its supreme leader and dozens of senior officials were killed in the opening hours.

By any conventional measure of military power, Iran is losing this war.

None of that has reopened the Strait of Hormuz.

Tehran does not need a functioning conventional military to deny passage through a waterway barely twenty miles wide at its narrowest point. Missiles, mines and armed drones are sufficient. Israeli estimates suggest around 70 per cent of Iran’s missile launch capability has been destroyed; the US has claimed roughly a third of the broader arsenal. Either way, what remains is enough to keep the Strait closed. The regime has decentralised its command structure precisely so that targeted assassinations cannot stop the machinery of disruption.

The result is a conflict that has been won on the battlefield and is being lost in the market. That gap — between military success and strategic failure — is the central reality facing every executive and investor with exposure to energy, trade and capital markets today.

Energy Security & Supply Chain Exposure

The scale of what has happened to global energy markets has no modern equivalent.

Around a fifth of the world’s oil and gas normally passes through the Strait of Hormuz. Since the war began, that flow has effectively stopped. S&P Global data shows tanker traffic through the waterway has fallen by 97 per cent compared with the equivalent period before the conflict began. The International Energy Agency has described the cumulative supply impact as the worst disruption in the history of the global oil market.

Two principal bypass routes exist. Saudi Arabia’s Petroline — running 1,200 km from the Gulf coast to Yanbu port on the Red Sea and the UAE’s Abu Dhabi Crude Oil Pipeline connecting onshore fields to the port of Fujairah on the Arabian Sea. Together they can move somewhere between 3.5 and 5.5 million barrels per day at realistic operating capacity, according to the IEA. The Strait normally carries twenty million barrels per day — leaving a gap of roughly fifteen million barrels with nowhere to go.

Built four decades ago, the Petroline is now providing an operational workaround but it still falls significantly short of pre-war export capacity.

The price consequences have been severe and are still accelerating. Following Trump’s televised address on 1 April — in which he promised further escalation rather than a negotiated settlement — dated Brent touched $141 a barrel, its highest since 2008. Brent futures settled above $109. Since the war began, oil has risen more than 55 per cent. Diesel and jet fuel have roughly doubled, with jet fuel in north-west Europe reaching $1,744 per tonne and American diesel at the pump rising to $5.38 per gallon.

The shock is moving geographically in a predictable sequence. Shell’s chief executive described South Asia as the first to absorb the full impact, followed by South-east Asia and North-east Asia, with Europe now entering the acute phase. Germany’s economy minister has warned that fuel scarcity could arrive by late spring. The EU’s energy commissioner has described the situation as a prolonged crisis and confirmed Brussels is preparing contingency plans for rationing.

Across Asia, the response has been a rapid return to coal. South Korea, Japan, India, Bangladesh and Thailand have all moved to increase coal-fired generation and cut their reliance on gas, lifting utilisation caps and reviving older plants. The coal price has risen more than 17 per cent since the war began — significant, but a fraction of the jump in Asian gas prices, which makes coal the economically rational short-term choice despite everything governments had been saying about phasing it out.

Outlook

The critical question is not whether the Strait eventually reopens — it will — but how much damage accumulates before it does.

Oxford Economics has modelled a six-month closure and concluded it would leave a gap in global oil supply large enough to push the world economy into recession, with the pain concentrated in emerging markets least able to absorb it.

Meanwhile, the energy supply map is being redrawn in ways that will outlast this conflict. Canada and Norway have both moved quickly to frame the crisis as a long-term commercial opportunity. Equinor plans to grow its international output by a quarter to 900,000 barrels per day by 2030. Canada is on track to become the world’s fourth-largest LNG exporter by the same date, with total exports projected to reach 50 million tonnes per year. A research group estimates Canadian oil producers could receive an additional C$90 billion in windfall revenue this year if prices hold.

For corporate energy buyers and supply chain planners, the practical conclusion is straightforward: Middle Eastern supply cannot be treated as reliable for the foreseeable future. Diversifying toward Atlantic Basin producers — American LNG, Norwegian gas, Canadian LNG — is no longer a strategic preference. It is an operational priority. Norway, Canada and the US are not simply filling a supply gap; they are converting an emergency into permanent market share. Long-term supply agreements signed now will outlast the war, and buyers who restructure their supply chains around Atlantic Basin producers will not automatically revert to Gulf dependency when Hormuz reopens.

The coal resurgence carries a harder-to-price consequence. Every Asian government that has extended coal plant lifetimes in the past five weeks has made a policy choice that will be difficult to reverse once higher energy costs become a sustained political issue. Corporate decarbonisation commitments built on the assumption of gas as a transition fuel face a structural challenge that sustainability teams cannot afford to ignore.

Trade & Investment Architecture

The war has cracked open an assumption that has underpinned global trade for three decades: that the United States would keep the sea lanes open.

That assumption was already under pressure. It has now been tested in the most consequential possible way — and found wanting. Not because American military power has proved insufficient, but because the political will to use it to reopen the Strait involves costs the administration has so far been unwilling to pay.

The fracture within NATO has been visible and striking. France, Germany, Italy and Spain have all declined to participate in military operations. The EU’s chief diplomat said plainly that this was “not our war.” France’s most senior military officer went further, observing publicly that Washington had launched strikes without even informing its allies — a breach that France said had direct consequences for its own security.

The practical damage to trade flows is already measurable. Shipping companies are operating without viable insurance cover for Hormuz transits. Fujairah — one of the world’s busiest ship refuelling ports — has suffered major disruptions, with multiple fuel suppliers declaring force majeure and suspending quotations. Fuel costs for the shipping industry have added roughly €4.6 billion since the war began. Maersk and Hapag-Lloyd have imposed emergency surcharges. In some cases, carriers have abandoned cargo runs altogether simply to move fuel between ports — something industry veterans say they have never seen before.

Iran has meanwhile begun charging for selective passage through the Strait. Individual vessels have reportedly paid around $2 million for the right to transit. Secretary of State Rubio warned publicly that Tehran may seek to turn this into a formal, permanent arrangement — which he described as illegal and unacceptable.

The problem is that what is unacceptable in principle can become tolerable in practice when the alternative is indefinitely higher energy costs.

Andreas Krieg of King’s College London has argued that this moment reflects a deeper pattern: an America that has tried to use its central position in global defence, finance and trade to extract concessions from everyone around it, and in doing so has begun to corrode the trust that made that position legitimate in the first place. The Gulf states played by the rules, invested heavily in Washington and expected to matter when it counted. They are discovering they did not.

Outlook

The tolling scenario — an Iran that emerges from the war retaining practical leverage over who passes through the Strait and at what price — is now the most commercially significant medium-term risk in the global economy.

Niall Ferguson of the Hoover Institution has noted a structural asymmetry that echoes previous American conflicts: Iran needs only to survive and impose costs, while the US needs to achieve something far more demanding to claim success. That gap between what each side requires for victory has defined American strategic difficulty in the region since at least the 1970s.

For multinationals with Gulf exposure, the risk premium on the region has shifted in ways that will not fully unwind when the fighting stops. The 2023 Saudi-Iran rapprochement, which China brokered and which briefly seemed to offer a path to managed coexistence, has been comprehensively overtaken by events.

Gulf states are now publicly demanding a conclusive outcome — an Iran stripped of the capacity to reconstitute its regional power and threaten its neighbours again. Whether Washington’s resolve and military resources match that ambition is the question on which the medium-term stability of global energy markets now rests.

For investors in Gulf infrastructure and sovereign debt, Qatar is the most acute immediate case. Fitch has placed Qatar’s AA rating on negative watch, citing an estimated annual revenue loss of $20 billion from the strikes on its Ras Laffan LNG complex. Restoring the damaged production infrastructure is not simply a matter of repairs — the specialist turbines required are made by only a small number of manufacturers worldwide, all of whom were already operating at capacity before the war began. Even after a ceasefire, Qatar’s export capability may take years to recover fully.

Oman offers the sharpest contrast in the region. S&P Global has affirmed its BBB- rating with a stable outlook. The reason is simple geography: Omani oil and gas exports do not pass through the Strait of Hormuz. Omani crude has been changing hands at roughly $158 per barrel as buyers compete for supply that can actually move. Oman’s long-cultivated neutrality — it mediated the February nuclear talks and has consistently pushed for a ceasefire and diplomatic resolution rather than escalation — has made it the Gulf’s most reliable operating base, absorbing traffic and trade that would normally flow through Dubai and Doha.

Currency, Sanctions & Capital Risk

The world’s most important financial market is showing signs of strain.

Trading conditions in US government bonds — the bedrock of the global financial system — have deteriorated meaningfully since the war began. The ease with which large trades can be made has declined sharply in the cash market and more severely still in bond futures, where conditions at their worst point fell to a fraction of the year’s average. Several major Wall Street banks suspended their automated trading systems during the most volatile sessions, falling back on manual processes that the market rarely needs.

Short-term US borrowing costs have risen by more than half a percentage point since the war began, a pace of increase not seen since late 2022. Recent government bond auctions have been noticeably weak, with the banks obliged to absorb unsold debt taking on unusually large shares — a reliable indicator that demand is thin.

Across the Atlantic, European government bonds are heading for one of their worst periods in a decade. Italian ten-year borrowing costs have risen nearly 0.8 percentage points in a single month, matching the pace of deterioration seen during the 2022 energy crisis. French yields have touched levels last recorded seventeen years ago. Markets are betting that the European Central Bank will raise rates three times this year to contain the energy-driven inflation surge — which compounds the fiscal problem for governments that simultaneously need to shield households from higher energy bills and fund rising defence budgets. When the previous energy crisis hit in 2021, over €650 billion was allocated across Europe to shield consumers from rising costs. Simone Tagliapietra of Bruegel has warned that governments simply do not have the fiscal room to repeat that exercise — existing deficits, defence commitments and the cost of new energy support packages are all competing for the same constrained budgets.

The deeper risk, however, lies in a channel that has received less attention than it deserves.

Mohamed El-Erian, Chief Economic Adviser at Allianz and Chair of Gramercy Funds Management, has identified it clearly. Over the past four years, the Gulf states have run very large combined current account surpluses, channelling that capital into global markets across equities, bonds, private credit, direct investments and increasingly AI infrastructure. That flow of patient capital has become a structural feature of how the world finances itself.

Several major Gulf economies are now examining whether the financial strain of the war gives them grounds to pull back from overseas investment commitments they made before the conflict began. The signal matters as much as the action. Gulf capital withdrawing — even partially, even temporarily — would arrive at precisely the moment when advanced economies are issuing record volumes of government debt, AI infrastructure needs enormous financing and a large wave of corporate borrowing is approaching maturity. The result is upward pressure on borrowing costs that compounds across businesses, governments and households everywhere.

The dollar has strengthened in the short term, reflecting a paradox that has defined previous episodes of US-led military action: the more the conflict unsettles global markets, the greater the demand for dollar-denominated assets as a safe haven. But early signals suggest the architecture of dollar primacy in energy markets is under quiet pressure. Iran is reportedly negotiating passage arrangements with several countries — among them China, Pakistan, India and Malaysia — with some transactions conducted outside the dollar-based financial system. Analysts at Deutsche Bank have noted the potential for this crisis to accelerate a gradual shift away from dollar settlement in energy trade — a dynamic they describe as the early conditions for a petroyuan. These are signals, not conclusions — but they are worth tracking.

Outlook

The market’s central anxiety has shifted in the past week from inflation to growth.

US government bonds rallied sharply in late March as investors began to buy duration — longer-dated debt — on the view that a slowing global economy poses a greater long-term risk than persistent inflation. That rotation reflects a genuine reassessment, not just positioning noise.

Tyler Goodspeed has just published Recession: The Real Reasons Economies Shrink and What to Do About It. It argues that modern recessions are almost never caused by a single thing — economies are large and resilient, and it takes several adverse forces arriving together to push them into contraction. The current environment assembles several of those forces simultaneously: an energy shock with no recent parallel, supply chains under pressure, tightening financial conditions, weakening consumer confidence and the risk of policy mistakes by central banks trying to respond to the same inflationary impulse across different economic conditions.

For treasury and capital allocation teams, the practical implication is to stop treating elevated borrowing costs as temporary. Any organisation with meaningful Gulf exposure, significant debt to refinance in the next eighteen months or energy costs denominated in dollars should be modelling a scenario in which the current disruption extends well into the second half of this year. That is no longer a stress test. It is rapidly becoming the base case.

Critical Resources Beyond Energy

The fertiliser story is the most underpriced risk in this crisis.

It moves more slowly than oil. It does not generate the same headlines. But its consequences — for food production, food prices and political stability across three continents — could prove more durable than anything happening in energy markets right now.

The Gulf is central to global fertiliser supply in a way that most people outside the agricultural industry do not fully appreciate. It accounts for close to half of the world’s traded urea and nearly a third of its ammonia — two of the three core nutrients that modern farming depends on. When Gulf production stops and Gulf shipments are blocked, those inputs do not simply become more expensive. They disappear from the supply chain entirely.

Commodity researchers estimate that roughly 43 per cent of global urea trade has been directly disrupted by the conflict. Sulphur, which is essential for producing phosphate fertiliser, also moves heavily through the Strait. Qatar’s Ras Laffan complex — already damaged and offline for gas production — was also one of the world’s largest urea producers. It is not operating.

The timing could hardly be worse. Northern hemisphere farmers are in the middle of their spring planting window. Nitrogen fertiliser needs to go into the ground now, not in six weeks when a ceasefire might be agreed. In the United States, corn planting decisions are already being revised, with some farmers switching to soybeans — a crop that draws nitrogen naturally from the soil rather than requiring it to be applied as fertiliser — because they cannot source or afford the inputs they need. Across India, gas rationing has cut fertiliser plant output to around 70 per cent of normal levels — and Punjab, India’s most productive farming heartland, is among those feeling the squeeze most acutely.

The human consequences further along the food chain are already visible. In Somalia, basic food prices have risen by approximately a fifth since the conflict began, according to the UN’s World Food Programme. The Horn of Africa was already close to the edge before the war started. It is now being pushed past it.

Research from the University of Edinburgh models a scenario where sustained fertiliser price pressure pushes global food costs up by between 60 and 100 per cent. At that level, the number of people facing undernourishment could grow by close to 100 million. Governments from New Delhi to Washington are paying attention — food prices are electoral dynamite, and history shows that sharp spikes in the cost of staples tend to produce political instability in fragile states within six to eighteen months.

Outlook

For companies with exposure to agricultural supply chains, food manufacturing or consumer staples in emerging markets, this is a risk that sits almost entirely outside current commodity market pricing.

Food prices have not yet moved in step with fertiliser prices. That gap will close. The question is whether it closes through a rapid resolution of the crisis or through harvest shortfalls that force the adjustment.

The IMF has noted that food accounts for roughly 36 per cent of household spending in low-income countries — against around 9 per cent in advanced economies. That asymmetry means that what registers as a modest inflationary inconvenience for a consumer in Berlin or Texas represents a genuine threat to food security for families across sub-Saharan Africa, South Asia and parts of the Middle East.

Companies with supply chain or commercial exposure in those regions should be assessing fertiliser risk now, not after the price signal reaches the shelf. By the time a ceasefire is agreed and inputs begin to move again, the damage to this season’s harvests will already be done.

US-China Strategic Competition

China entered this crisis better positioned than almost any comparable scenario would have predicted — and has been careful not to squander that advantage.

Its strategic reserves cover several months of import needs. Its energy sourcing spans Russian pipelines, Central Asian routes and significant domestic production. Goldman Sachs has estimated that less than 10 per cent of China’s total energy consumption faces direct exposure from the Hormuz closure — a far smaller share than any major Asian competitor.

Beyond reserves, China’s refinery sector gives it something more valuable still. Two decades of deliberate industrial investment have left it with more refining capacity than its domestic market requires. The refined products that flow from its plants — diesel, jet fuel, fertiliser components and more — can be directed toward or withheld from global markets as circumstances demand. This is not commercial overshoot. It is strategic depth, built intentionally.

Alicia Garcia-Herrero of Bruegel has identified an asymmetry here that is easy to miss. When China restricted jet fuel exports to Australia, the impact was almost immediate — because Australia had allowed itself to become heavily dependent on Asian refined product imports. The same logic applies to fertiliser, to sulphur and to a range of industrial inputs where Chinese production capacity is the swing factor in global supply. This is economic statecraft expressed through industrial policy: build enough capacity that withholding supply becomes a credible instrument of leverage.

There is a further twist that Garcia-Herrero has examined carefully. Most economies experiencing an energy shock feel it as a straightforward cost problem: prices rise, household spending power falls, central banks respond, growth slows. China was suffering from the opposite problem before the war — falling prices, weak demand, an economy that needed a modest inflationary push. A moderate rise in energy costs functions, counterintuitively, as a reflationary boost. US and European manufacturers absorb higher input costs that make their goods less competitive. Chinese exporters gain ground in global markets without doing anything differently.

The strategic picture beyond economics is more complex. American military resources have been drawn toward the Gulf at a moment when Beijing has been steadily raising pressure in the Pacific. Stocks of precision munitions have been significantly drawn down over five weeks of intensive operations, and replacing them takes years. Beijing is watching American naval operations in the Gulf in real time — the operational lessons for any future confrontation in the Taiwan Strait are being absorbed. China’s diplomatic positioning has been patient: criticising the strikes without directly confronting Trump, and joining Pakistan in a joint five-point initiative calling for a ceasefire and the restoration of Hormuz navigation — a framework structured less to resolve the conflict than to present both countries as responsible actors against Washington’s unilateralism. Meanwhile the 2023 Saudi-Iran rapprochement that China brokered — its most significant diplomatic achievement in the region — has been demolished by the war, a strategic setback Beijing will be watching carefully as it calculates its next move.

Outlook

China’s position in this crisis has two distinct phases that cannot be collapsed into a single judgement.

In the near term, Beijing is advantaged. It is more insulated from the energy shock than its competitors, accumulating diplomatic capital as American alliances fracture, and positioned to supply energy, refined products and reconstruction materials to countries that need them.

In the medium term, the picture depends heavily on one variable: whether the global economy tips into deep recession. Garcia-Herrero has argued that this is the scenario that flips China’s advantage into vulnerability. Chinese factories produce for the world. If the world stops buying — because energy costs have pushed major economies into contraction — Chinese export orders collapse, corporate profits evaporate, the property crisis deepens and local government finances, already stretched, face further pressure. China’s domestic cushion is thinner than it appears: households have been weakened by the property collapse, and the political will to stimulate consumption through fiscal spending has not materialised.

Beijing understands this. Its current posture reflects a careful calculation about how much it can gain before the situation becomes dangerous for everyone, including China.

For multinationals assessing their China exposure, the relevant questions are not whether China wins or loses in aggregate. They are: which parts of the business benefit from China’s energy cost advantage; which supply chains face exposure to Chinese export restrictions on refined products, fertilisers or critical minerals; and how the US-China trade relationship — already under significant stress before the war — evolves through and after a summit held in the shadow of the most consequential US military operation in a generation.

Alternative Outcomes

If Iran Controls the Toll Booth

The primary scenario in this edition of Shifting Sands assumes a negotiated end to hostilities within weeks, producing a damaged but surviving Iranian regime with residual leverage over the Strait and a contested but ultimately resumed flow of shipping.

The scenario that deserves serious commercial weight is not a worse military outcome but a more durable economic one: Iran successfully establishes a permanent tolling system over Strait passage, turning the world’s most important energy corridor into a source of revenue and coercive power.

The logic from Tehran’s perspective is not difficult to follow. Before the war, sanctions had compressed Iran’s oil revenues to a fraction of what the country could otherwise earn. A functioning toll on Strait traffic — even at heavily discounted rates for cooperative countries — would generate income that dwarfs anything sanctions-relief negotiations were likely to deliver. The regime has already demonstrated it can charge for selective passage. The question is whether it can make that arrangement stick.

For the major Asian importers — Japan, South Korea, India, China — the calculus is uncomfortable. None of them wants a permanent confrontation with Iran. None of them has a compelling reason to back American military operations at their own economic expense. If the alternative to paying a toll is indefinitely higher energy costs, the toll begins to look like a business cost rather than a political capitulation.

For Gulf states, the stakes are existential. Accepting a toll arrangement would effectively acknowledge that Iran controls the infrastructure through which their own exports move. Rejecting it would mean either absorbing continued disruption or joining military operations against a neighbour that has already demonstrated it can strike refineries, aluminium smelters and desalination plants with meaningful accuracy.

For European governments and corporate treasury teams, the tolling scenario represents the hardest planning challenge of the three: not the clean shock of active conflict, but the grinding uncertainty of a managed instability that has no obvious resolution date.

Some Gulf states are demanding a decisive outcome because they understand this dynamic. The question of whether Washington has the will and the resources to deliver it is now the central variable in global energy markets — and in the investment environment across the Middle East for years to come.

Closing Thoughts

Five weeks of this war have produced a paradox that should be at the centre of every board-level risk conversation.

The military campaign has largely achieved what it set out to do. Iran’s armed forces have been severely degraded. Its nuclear programme has been set back by years. Its leadership has been decimated. And yet the regime retains the one capability that matters most right now: the ability to keep the Strait of Hormuz closed, or to extract a price for opening it.

Military success and strategic failure can coexist. History shows they often do.

For operational leaders and investors, two decisions are more time-sensitive than anything else right now. The first is fertiliser. If your business has any exposure to agricultural supply chains, food production or consumer staples in emerging markets, the window to act is the planting calendar — which is closing now — not the diplomatic calendar, which remains wide open. The consequences of this season’s disruption will not be fully visible until the harvest. By then, the opportunity to respond has passed.

The second is duration. The market has begun to price growth risk rather than just inflation risk, and the case for longer-dated government bonds has strengthened materially. Consumer balance sheets going into this shock are weaker than they were in 2022. Fiscal ammunition is more limited. The combination of higher energy costs and tighter financial conditions is a meaningful drag on growth in every major economy — and that drag will compound the longer the Strait remains closed.

The deeper question — whether this war ends with Iran neutered, entrenched or controlling a toll booth on the world’s energy supply — will shape investment conditions across the Middle East, in global energy markets and in the US-China competition for years ahead. That answer is not yet visible. What is already clear is that the United States and Israel launched this conflict without a theory of how it ends. The rest of the world is paying the price.

References

Ferguson, Niall. Goodfellows, Hoover Institution, 25 March 2026.

Garcia-Herrero, Alicia. Bruegel: ‘What the war in Iran means for China,’ 24 March 2026.

Garcia-Herrero, Alicia. Euractiv: ‘China’s quiet win in the Iran crisis,’ 24 March 2026.

Goldenberg, Ilan. Foreign Affairs: ‘America Has No Good Options in Iran,’ 23 March 2026.

Goodspeed, Tyler. Recession: The Real Reasons Economies Shrink and What to Do About It. Basic Books, March 2026.

Krieg, Andreas: ‘Can Trump’s America Drive Europe and the Gulf Together,’ 25 March 2026. https://www.andreaskrieg.com/post/can-trump-s-america-drive-europe-and-the-gulf-together

Levitt, Matthew. Foreign Affairs: ‘Will Iran Turn to Terrorism?’ 24 March 2026.

El-Erian, Mohamed A. Financial Times: ‘Iran war is risk to the flow of Gulf funds around the globe,’ 23 March 2026.

Politi, James and Hauslohner, Abigail. Financial Times: ‘Global markets recoil as Marco Rubio warns war in Iran could stretch for weeks,’ 27 March 2026.

Oxford Economics: ‘Prolonged war in Iran could tip the global economy into recession,’ 31 March 2026.

Fitch Ratings. ‘Qatar Long-Term IDRs placed on Rating Watch Negative,’ 30 March 2026.

S&P Global Ratings. ‘Oman affirmed at BBB-/A-3; Outlook Stable,’ 27 March 2026.

IMF. ‘How the War in the Middle East Is Affecting Energy, Trade, and Finance,’ 30 March 2026.

Headlines

• Ras Laffan, responsible for roughly a fifth of global LNG supply, has sustained damage that Qatar’s energy minister estimates will take three to five years to repair, costing approximately $20 billion per year in lost revenue, the most durable supply constraint to emerge from this conflict

• Strait of Hormuz traffic has fallen by 96 per cent; Goldman Sachs estimates flows at 600,000 barrels per day against a pre-war level above 19 million, a near-total closure with no precedent in the era of modern oil markets

• Iran is not attempting to end this war: it is managing the pace of its attacks to sustain a long campaign, using selective Hormuz passage as a geopolitical lever and demanding guarantees and sanctions relief before it stops

• Russia has collected an estimated $1.3–$1.9 billion in additional state revenues in the first twelve days of the conflict alone, with analysts projecting a full-month windfall of $3.3–$4.9 billion, making it the war’s largest financial beneficiary by some margin

• The Trump-Xi summit has been delayed by five to six weeks; Beijing is negotiating its own Hormuz passage deal with Tehran rather than joining a US-led naval coalition, accelerating the strategic drift between Washington and Beijing

Context

On 28 February 2026, the United States and Israel launched Operation Epic Fury, a coordinated air campaign targeting Iran’s military leadership, nuclear programme, missile infrastructure and command-and-control architecture. Within hours, Iran activated what Dr Andreas Krieg of King’s College London has called its Mosaic Defence doctrine: more than sixty dispersed local commands executing retaliatory strikes across the region with decentralised agency and no dependence on central coordination. The supreme leader was killed. Iran’s response reached fourteen countries.

Three weeks later, the conflict has defied every compressed timeline its architects envisaged. Iran has fired more than 3,000 missiles and drones at Gulf states and Israel. Ras Laffan, Qatar’s LNG mega-complex and the beating heart of global gas supply, has been struck by a ballistic missile and sustained extensive damage. The Strait of Hormuz, through which roughly a fifth of the world’s oil and gas normally passes, has been reduced to a trickle. Scores of ships lie at anchor across the Gulf with nowhere to go.

This is not a crisis that resolves when the bombing stops. The physical infrastructure damage, the permanent repricing of Hormuz risk and the acceleration of structural shifts in global energy and capital markets will outlast any ceasefire by years.

Energy Security & Supply Chain Exposure

The numbers alone tell a story of historic disruption. Goldman Sachs estimates that Hormuz flows have fallen to 600,000 barrels per day from a pre-war average above 19 million. According to JPMorgan, production cuts are approaching 12 million barrels per day. The Rapidan Energy Group calculates that approximately 20 per cent of global oil supply has been affected, roughly twice the record disruption recorded during the Suez Crisis of 1956–57.

The physical market has separated sharply from the paper market. While Brent crude has oscillated between $100 and $119 as traders price in alternating hopes of a rapid ceasefire and fears of escalation, the real cost of obtaining oil now bears little resemblance to benchmark pricing. Oman crude, exported from ports outside the conflict zone, reached nearly $154 per barrel as buyers compete for the small volumes still leaving the Middle East. The cost of crude for Asian refineries has roughly doubled since before the war. Analysts at Argus Media have described the market as one driven entirely by the absence of physical supply rather than financial speculation.

The scarcity is structural, not just logistical. The oil trapped behind Hormuz is predominantly medium-sour crude: heavier, higher-sulphur grades refined primarily in Asian facilities. Refineries in Japan, South Korea, Thailand, Indonesia and Vietnam that are configured for these grades cannot easily switch to the light sweet crude represented by Brent and WTI. Even where alternative grades are physically available, the switch affects output quality and yield, and the options available to offset lost Gulf medium-sour flows to Asia are severely constrained. This compounds a problem JPMorgan analysts have already identified: acute shortages of diesel, jet fuel, LPG and naphtha that are likely to deepen even as headline crude benchmarks fluctuate.

From the opening days of the war, Iranian strikes targeted the industrial complexes at Ras Laffan. The 19th March ballistic missile strike was the most severe blow yet: Qatar’s Energy Minister Saad al-Kaabi has stated that the damaged facilities account for 17 per cent of QatarEnergy’s LNG export capacity and that repairs will take three to five years. The impact extends beyond gas: Qatar is the world’s second-largest fertiliser producer, accounting for 10 per cent of the global market, and supplies 35 per cent of global helium, a critical input for semiconductor manufacturing and medical imaging equipment. The fertiliser and helium supply gaps will compound the energy shock through agriculture and advanced manufacturing.

Outlook

The energy architecture that emerges from this conflict will not resemble the one that preceded it, regardless of when hostilities formally end. Iran has now demonstrated its willingness to execute its longstanding Hormuz threat, and the implication is structural: the risk premium attached to every shipping decision, insurance contract and infrastructure investment in the region has shifted permanently, not temporarily.

Iran is reinforcing this by constructing a selective passage system. At least eight vessels have transited via an unusual route around Larak Island on Iran’s coast, with one tanker operator paying a $2 million fee for safe passage. China and India are negotiating directly with Tehran for preferential access. Mohammad Mokhber, a former Iranian first vice-president, has stated publicly that once the war ends, Iran will establish a new regime for the strait designed to upgrade Iran’s position from a sanctioned state to a regional power. The Houthi Red Sea model, in which passage is selectively granted against payment or political alignment, is the template being applied at a far larger scale.

For Asian energy importers, the strategic implication is acute. China, India, Japan and South Korea together receive almost 70 per cent of Middle Eastern crude flows through Hormuz, meeting nearly half their combined crude requirements via this route. Beijing has responded by ordering its top refiners to halt fuel exports and is negotiating its own passage deal. India is asking state-owned refiners to prioritise domestic supply. Both countries increased Russian crude imports by 22 per cent in the week following the strikes. If the disruption persists for months, Beijing and New Delhi will be competing for the same constrained Russian supply, with prices already running above pre-war Brent levels.

For European buyers, the asymmetry runs the other way. European gas prices have nearly doubled since the conflict began. UK 10-year gilt yields have risen approximately 30 basis points. The Bank of England is no longer expected to cut rates before year end; European Central Bank markets are pricing in the possibility of a rate increase. Oxford Economics estimates that UK and eurozone inflation will be approximately 0.5 percentage points higher by the fourth quarter as a direct consequence of the conflict.

Of all the numbers generated by this conflict, the three-to-five year Ras Laffan repair timeline carries the longest commercial shadow. It sets the floor for global LNG supply tightness independent of ceasefire timing. Qatar’s planned North Field expansion, a $30 billion project that would have added capacity equivalent to approximately 30 per cent of 2024 global LNG demand by 2027, is now delayed. Norway, Algeria, Kazakhstan and the United States are the structural beneficiaries: their lighter crude grades are seeing record premiums relative to North Sea dated oil as buyers scramble for substitutes.

Trade & Investment Architecture

The war’s commercial consequences extend well beyond commodity markets. MSC, Maersk, COSCO, CMA CGM and Hapag-Lloyd have all suspended new bookings to most Gulf ports or imposed significant emergency surcharges on existing cargo. Approximately 3,200 ships are stuck in the Gulf, with passage through Hormuz down 96 per cent. Diversion costs, longer routes and war-risk insurance premiums now running at 12 times pre-war levels are flowing through supply chains from petrochemicals and plastics to automotive components.

China’s exposure is bilateral. It sent more than $30 billion worth of goods to Middle Eastern countries in the first two months of 2026 alone, led by machinery, electronics and cars, and its exports to the region were growing at nearly twice the rate of exports to the rest of the world. The simultaneous loss of Gulf export markets and disruption to Gulf energy imports creates a squeeze from both sides. Beijing’s response, summoning Maersk and MSC to the transport ministry to demand price restraint, mirrors its Covid-era playbook and is similarly unlikely to move markets.

Oman has emerged as the region’s most significant logistics alternative. Its three gateway ports, Sohar, Duqm and Salalah, sit outside the conflict zone and are being positioned by carriers and logistics providers as stable alternatives capable of absorbing diverted traffic. Cross-border trucking corridors connect Oman to Saudi Arabia, the UAE, Qatar, Kuwait and Bahrain. The same geographic neutrality that makes Oman commercially valuable makes it diplomatically indispensable, a point returned to below.

Ron O’Hanley of State Street has described the energy disruption as a “Covid moment” for businesses: a fundamental breakage in the supply chain that forces permanent structural reassessment. The practical implication for capital allocators is that every new industrial facility in Europe and Asia now requires an energy resilience premium built into the investment case. Gas-reliant manufacturing without backup supply is no longer a viable model.

Outlook

The just-in-time supply chain model faces permanent revision in sectors with Gulf exposure. The shift toward just-in-case inventory is already underway, with all the working capital and stagflation implications that carries. Sectors most exposed include petrochemicals, plastics, fertilisers, semiconductors via sulphuric acid, helium and bromine supply, and aviation through jet fuel product shortages.

The sovereign wealth fund liquidation risk is one of the most under-discussed capital market consequences. Qatar’s Investment Authority manages approximately $550 billion in assets and had been projecting a doubling of assets under management over five years on the back of the North Field windfall. With approximately $20 billion per year in gas revenue now at risk, Farouk Soussa of Goldman Sachs has identified a scenario in which the QIA liquidates overseas assets to finance the revenue gap, exactly as it repatriated more than $20 billion during the 2017 blockade. For global real estate, infrastructure and equity markets where Gulf sovereign capital has been a structural buyer, this is a direct asset price risk. Several Gulf states, including Qatar, have already begun reviewing their investment portfolios and future commitments.

Currency, Sanctions & Capital Risk

Russia has become the war’s most paradoxical beneficiary. Before Operation Epic Fury, Moscow was under severe fiscal stress: energy revenues had fallen almost 50 per cent year on year in the first two months of 2026, pushing its budget deficit to more than 90 per cent of the full-year projection. The Gulf disruption reversed this trajectory within days. With India’s Russian crude imports running at 1.5 million barrels per day, up 50 per cent from early March, and Russian crude now trading at approximately $20–$30 per barrel above its recent average, the Kremlin is collecting an estimated $110–$160 million per day in additional budget revenues. Analysts at the Kyiv School of Economics project a full-month windfall of $3.3–$4.9 billion.

The mechanism matters as much as the number. Russian crude, previously sold at a substantial discount to Brent due to sanctions pressure, is now trading at a premium in India, a complete inversion of the pre-war dynamic. The US has simultaneously eased sanctions pressure on Russian oil exports to India and Trump has floated the possibility of broader sanctions relief. The combination of higher prices and reduced enforcement is providing Moscow with a fiscal lifeline precisely when it was most constrained.

The broader sanctions architecture is being stress-tested in real time. Maximilian Hess of the Carnegie Russia Eurasia Center has traced a direct line from the Gulf disruption to Sino-Russian energy recalibration: China’s new five-year plan, adopted at the Two Sessions this month, includes a new gas pipeline from Russia, a project Beijing had previously resisted on energy diversification grounds. With Venezuela cut off by the US naval blockade, Iran disrupted and Gulf sources blocked at Hormuz, Russia is the only large nearby alternative with sufficient spare capacity, and with limited alternative buyers available, it cannot afford to resist Chinese terms regardless of how favourable the price environment becomes. However, if the crisis extends into the summer, Beijing and New Delhi will be competing for Russian output, driving up revenues further and entrenching Moscow’s energy leverage over both Asian giants.

Bond markets are repricing accordingly. The risk of persistently elevated inflation, delayed rate cuts and widening fiscal deficits is reflected in gilt and Treasury yield movements. One analytical framework gaining traction holds that Iran does not need to defeat the US military to achieve its objectives: it needs only to inflict sufficient economic pain on global bond and energy markets to force a US withdrawal. That framework is being tested in real time. The OECD’s 2026 debt report, published just before the conflict, identified hedge fund concentration in short-term price-sensitive positions as a systemic vulnerability; the conditions for a disorderly bond market episode are in place even if one has not yet materialised.

Outlook

The Russia sanctions trajectory is the most consequential medium-term capital risk in this analysis. A scenario in which the Trump administration uses the Iran war as cover to substantially ease Russia sanctions, providing Moscow with both higher oil prices and expanded market access simultaneously, would have profound implications for the Ukraine war’s trajectory and for European energy policy. A major energy company’s internal study has reportedly warned that European governments will face pressure to delay their planned Russian LNG ban if Middle East disruption persists. Years of post-Ukraine sanctions architecture could unravel within months.

US-China Strategic Competition

The Trump-Xi summit delay is analytically more significant than its presentation as a logistical inconvenience. Trump has admitted he does not expect the war to end this month. That admission matters: a conflict running for three months or more, with lasting damage to Gulf energy infrastructure, would represent a supply shock extending well into 2027 and carrying consequences for global growth materially worse than a short, sharp disruption. With the summit now likely to occur no earlier than mid-May, and potentially later if hostilities continue, the sequence of up to four planned leader-level engagements in 2026 is under pressure.

The more important dynamic is what China is doing while the summit is delayed. Beijing is not joining the US-led naval coalition to reopen Hormuz. It is negotiating its own passage deal with Tehran. At least nine COSCO vessels were amassing north of Abu Dhabi as of 19th March, preparing to transit via the Larak Island route Iran has opened to selected traffic. Tom Sharpe, a retired UK Navy commander, has identified the structural logic: China is Iran’s largest oil customer, and Iran will not fully close the strait because Beijing would not allow it. This creates a bilateral energy security arrangement that operates outside and parallel to the US-led commercial order, which is precisely what Bordoff and O’Sullivan, writing in Foreign Affairs in October 2025, identified as the defining structural risk of the new age of energy weaponisation.

The deeper consequence is the acceleration of Sino-Russian energy integration on China’s terms. Russia, desperate for revenue and unable to resist Chinese pressure despite India’s growing appetite for its crude, is crawling further into Beijing’s orbit. Renminbi-denominated energy trade, below-market pricing and new pipeline infrastructure represent a reconfiguration of the Eurasian energy architecture that will outlast this conflict by decades.

Outlook

The war is stress-testing China’s energy diversification strategy at precisely the moment Beijing thought it had made progress. Its goal of importing no more than 20 per cent of crude from any single source is rendered meaningless when the Middle East as a region, accounting for nearly 50 per cent of Chinese crude imports, is effectively closed at its primary transit point. The practical consequence is that China’s energy security strategy will pivot decisively toward overland Russian supply, accelerating a dependency that Beijing’s own planners had been trying to manage. For multinationals assessing China exposure, this is a relevant input: a more Russia-dependent China is a China more insulated from Western economic pressure in a Taiwan scenario and more likely to resist US attempts to leverage energy access as a deterrent.

If the War Ends Next Week

The primary scenario in this edition of Shifting Sands is a conflict extending well into spring, consistent with Trump’s own implicit admission in delaying the Beijing summit and the assessments of independent energy and conflict analysts. But the second-most-likely path deserves examination.

A near-term ceasefire, driven by Trump’s midterm calculations, bond market pressure and the accumulating economic cost to US Gulf allies, is plausible. The mechanism exists: Oman’s Foreign Minister Sayyid Badr Al Busaidi, who personally mediated the most recent US-Iran nuclear talks, has proposed publicly that a ceasefire be linked to a wider regional framework on nuclear energy transparency. This is the most sophisticated exit architecture in the public domain. Oman remains the only Gulf state with both the diplomatic credibility and the intact Iranian relationships to broker it. Qatar’s expulsion of Iranian diplomatic personnel following Ras Laffan has removed its channel. The UAE is too exposed and too angry. Oman’s neutrality and His Excellency Al Busaidi’s direct access to both Washington and Tehran make Muscat the indispensable address for any negotiated off-ramp.

The commercial implication of a ceasefire, however, is not a return to pre-war conditions. Rob Malley, who served as Biden’s Iran envoy, has identified Iran’s dual objective: ending the war’s costs while ensuring the US and the global economy pay a sufficient price to deter future attacks. Iran has already stated its conditions as security guarantees and sanctions relief. Even if those conditions are partially met, the new Hormuz regime described by former Iranian first vice-president Mokhber, selective, fee-based and politically contingent, would remain. Lord Ricketts, a former UK National Security Adviser, has noted that insurers will remain wary of the strait for a considerable period after any ceasefire, because IRGC local operatives retain the capacity to threaten shipping independently of high-level political decisions.

The ceasefire scenario is therefore best understood as a transition from acute disruption to chronic uncertainty. That is commercially distinct from pre-war normalcy, and investment decisions should be calibrated accordingly.

The Long Shadow

The decisions being made this week, where to source energy, how to route supply chains, which counterparties to avoid and whether to proceed with Gulf infrastructure investment, will outlast the conflict that is forcing them. Ron O’Hanley’s Covid moment framing is right: companies that have been caught exposed will not leave themselves exposed again.

For operational leaders, the immediate priorities are clear. Energy backup supply must be built into every new industrial project in Europe and Asia. Supply chains running through the Gulf require alternative routing or inventory buffers that did not exist six months ago. Physical commodity procurement teams should treat medium-sour crude availability as a structural constraint, not a temporary disruption.

For investors, the more important question is structural. The QIA and other Gulf sovereign wealth funds are under pressure to repatriate capital. Of all the numbers generated by this conflict, the three-to-five year Ras Laffan repair timeline carries the longest commercial shadow. The permanent repricing of Hormuz risk changes the investment case for every facility, port and logistics hub that sits behind the strait. Norwegian and Algerian LNG exporters and Omani port infrastructure are the structural beneficiaries of a disruption that is not going away. So is coal: prices have risen approximately 20 per cent since the conflict began.

The more uncomfortable strategic question is whether this war has permanently altered the credibility of the US as the guarantor of freedom of navigation, the foundational assumption of the post-war international trade order. Oman’s Foreign Minister has stated it plainly: America has lost control of its own foreign policy. Whether that assessment is temporary or permanent will define the geopolitical architecture of the next decade.

• Oil has risen 28% in a week to $92 a barrel. Goldman Sachs places $100 as the likely near-term outcome, with $147 possible if the Strait of Hormuz remains constrained through March.

• Qatar has declared force majeure on LNG deliveries following strikes on Ras Laffan. Kuwait has also declared force majeure and cut oil output. Asian spot LNG prices have nearly doubled. Coal has risen 20% to $135 per tonne in a single week.

• Israel has expanded its strikes to include Iranian energy infrastructure, hitting oil storage facilities in Tehran. Iran’s parliamentary speaker has warned the conflict could halt Iranian oil production entirely.

• Iran’s military units are operating on pre-set target lists without real-time central oversight. The political leadership cannot guarantee that a ceasefire order will be obeyed at the tactical level.

• The Trump–Xi summit, scheduled for March 31, is proceeding. China is signalling its eagerness to manage the conflict’s fallout diplomatically — while quietly benefiting from every week of US military overextension.

Context

On February 28, 2026, the United States and Israel launched Operation Epic Fury — coordinated strikes on Iran that killed Supreme Leader Ayatollah Ali Khamenei and targeted nuclear, missile, and military infrastructure.

Iran retaliated immediately and at scale. Missiles and drones struck US bases, airports, energy facilities, and civilian infrastructure across Qatar, the UAE, Saudi Arabia, Kuwait, Bahrain, and Oman. The Strait of Hormuz — through which approximately one-fifth of the world’s oil and gas flows daily — has ground to a near halt. At least ten ships have been struck. More recently, a drone damaged a water desalination plant in Bahrain and a government building in Kuwait City was set ablaze.

Israel has since expanded the conflict beyond Iran’s military installations to its energy infrastructure, striking oil storage facilities in Tehran and renewing its assault on southern Lebanon, including a strike on a hotel in Beirut’s Raouche neighbourhood that killed four people. The death toll in Lebanon has now exceeded 300.

Qatar, the world’s second-largest LNG producer, declared force majeure after its Ras Laffan facility was hit. Brent crude has risen 28% in a week to $92 a barrel.

Iran’s internal politics have fractured under pressure. President Pezeshkian initially apologised to Gulf neighbours for the attacks on them. After Trump publicly characterised those remarks as a surrender — and after armed forces officials and senior politicians at home denied any halt in attacks had been agreed — Pezeshkian reversed course, stating that Iran has no choice but to respond militarily to any country from which attacks on Iran are launched.

This is not a contained military exchange. Every Gulf state opposed this war before it began. All of them are now paying the price.

The question for business leaders is not whether this conflict affects commercial operations. It already does. The question is how deep the damage runs, and how long it lasts.

Energy Security & Supply Chain Exposure

The scale of the disruption is without modern precedent in speed, if not yet in magnitude.

Qatar’s energy minister has indicated that oil could reach $150 a barrel within two to three weeks if the Strait remains closed, and that gas prices could rise to $40 per million British thermal units — nearly four times pre-war levels. The broader warning from Doha is that a prolonged closure would impose damage far beyond the energy sector.

On any pre-war day, as many as 90 tankers transited the Strait. This week, fewer than 50 passed through in total. Hundreds of oil and gas tankers are now anchored in surrounding waters. War-risk insurance premiums have risen from 0.25% of vessel value before the war to as much as 3% now.

The shock runs wider than oil. Asian spot LNG prices have nearly doubled. European natural gas is up approximately 50% from pre-war levels. Coal — the fallback fuel — has risen 20% to $135 per tonne in a single week. In 2022, coal more than doubled within weeks of Russia’s invasion of Ukraine.

The UK is particularly exposed. Britain derives roughly 35% of its total energy demand from gas. Gas prices rose 75% in the first four days of the war. Power contracts for April jumped 18% — more than double Germany’s equivalent increase. Business energy bills are moving now. Household bills follow in July via the Ofgem price cap reset.

Israel’s expansion of strikes to include Iranian energy infrastructure — hitting oil storage facilities in Tehran — introduces a new dimension. Iran’s parliamentary speaker has publicly warned that if the war continues at its current pace, the country will lose both the capacity to produce and the ability to export oil. This matters not just for Iran’s revenues but for China, which imports 13% of its crude from the Islamic Republic.

Outlook

The most consequential medium-term dynamic is not the oil price itself but what sustained high energy costs do to monetary policy globally. Central banks in Europe, the UK, South Korea, Japan, and India entered 2026 in cautious rate-cutting mode. An energy-driven inflation resurgence forces a reversal. For South Korea and Japan — both heavily LNG-dependent — the compounding effect is severe: import costs spike at precisely the moment export revenues soften as regional demand cools. For Germany, already operating under industrial energy stress since 2022, a return to $100-plus oil combined with elevated gas prices risks a third consecutive year of GDP contraction.

The structural shift in LNG contracting will outlast any ceasefire by years. Asian economies — South Korea, Japan, Taiwan, and increasingly India — will use this crisis as the forcing function to accelerate long-term supply agreements with US, Australian, and East African LNG producers. The beneficiaries are already identifiable: US Gulf Coast LNG export terminals, Australia’s north-west shelf operators, and Mozambique’s nascent LNG sector. Qatar’s $30 billion North Field expansion—intended to lift capacity by 2027—is now facing open-ended delays, meaning the supply shortfall this crisis has exposed could persist structurally into the next decade.

For coal, the implications run counter to the energy transition narrative. A protracted conflict would drive utilities across Asia and Central Europe back toward coal-fired generation at scale. Indonesia, as the world’s largest thermal coal exporter, stands to benefit in revenue terms. European utilities that prematurely retired coal generation — having reduced it by approximately 50% since 2019 — face acute constraint in sourcing alternatives, a vulnerability that no amount of renewable buildout can address on a six-month horizon.

Trade & Investment Architecture

The conflict has landed on top of a global trade system already fracturing.

The Trump administration confirmed this week that the global tariff rate will rise to 15% — up from 10% — under Section 122 of the Trade Act of 1974, with rates set to return to higher levels within five months. The administration has simultaneously eased sanctions on Russian crude exports to India and is considering wider Russian oil waivers. The policy coherence of the world’s largest economy is visibly under strain.

The Spain episode makes the new trade architecture explicit. When Prime Minister Sánchez refused the use of Spanish military bases and condemned the war, Trump threatened to sever all trade ties. Commercial relationships are now explicitly conditional on military and political alignment with Washington.

The UK’s position is more nuanced but no less consequential. Prime Minister Starmer declined to support the initial strikes, drawing a public rebuke from Trump, who questioned the value of British aircraft carriers in the theatre and warned London its hesitancy would be remembered. The UK’s response — emphasising intelligence sharing and joint base access rather than combat participation — has not resolved the tension. For British firms operating at the intersection of US and European trade frameworks, the political ambiguity around London’s alignment creates a specific compliance and partnership risk.

The deeper risk lies in the Gulf itself. Jebel Ali port — the region’s busiest — was struck this week. Large investment transactions have been suspended. An institutional investor withdrew a bid worth hundreds of millions of dollars on a Jebel Ali logistics park. Whilst DP World has confirmed ongoing operations, exports through Dubai have been seriously impacted.

Outlook

The Abraham Accords are likely to be a major casualty of this war, with a significant decline in political and commercial momentum. The normalisation framework between Israel and four Arab states was already under strain following the Gaza conflict; the US-led assault on Iran, conducted without Arab consent and over explicit Arab objection, has made continued association with that framework politically untenable for Gulf governments facing domestic pressure. The Gulf States will not formally repudiate their relationships with Washington — they still depend on US security guarantees — but the warmth is fading, and with it the commercial momentum the Accords had begun to generate.

The more significant structural consequence is the acceleration of a bifurcated Gulf investment architecture. Before this war, Gulf sovereign wealth funds — led by Abu Dhabi’s ADIA and Mubadala, Saudi Arabia’s PIF, and Qatar Investment Authority — were deepening ties with both Western and Chinese capital markets simultaneously. This crisis will force a clearer hierarchy. GCC states, that have seen their civilian infrastructure struck while the US pursued a war they opposed, will recalibrate. Chinese-brokered frameworks — including the 2023 Saudi-Iran normalisation agreement — will carry renewed credibility as an alternative security architecture. Investment mandates will shift accordingly, with Gulf capital increasingly directed toward Asian infrastructure, Chinese technology partnerships, and Belt and Road adjacent projects, at the expense of US and European real estate and private equity positions.

For multinationals with Gulf operations, the post-war operating environment will be materially different from the pre-war one. Firms that structured their regional logistics around Jebel Ali as a neutral, rules-based hub will need to reassess that assumption. Supply chain architectures that treated Jebel Ali as a safe throughput node rather than a geopolitical exposure will require fundamental rethinking.

Currency, Sanctions & Capital Risk

Global capital markets have repriced sharply — and the signals are contradictory.

The dollar is on course for its best week in four months. European equities are down 3.5%. South Korea’s KOSPI fell 12% in a single session - a record one day drop. Asian LNG-dependent economies face a compounding shock: energy import costs surge precisely when export demand softens.

The sanctions landscape is shifting in real time. The US has eased restrictions on Russian crude and is considering wider waivers. The EU and UK have not followed Washington’s lead — creating immediate compliance divergence for multinationals operating across both jurisdictions. A firm incorporated in the UK or EU that sources through a US subsidiary operating under eased Russian crude rules faces a conflict with its own home jurisdiction’s sanctions regime that has no clean legal resolution under current frameworks.

Outlook

The dollar’s safe-haven rally is a misleading signal for medium-term positioning. Senior strategists at Pictet Asset Management argue this conflict will accelerate the structural shift away from US assets already underway in sovereign and institutional portfolios. That shift — driven by dollar weaponisation concerns since 2022, reinforced by US tariff unpredictability since 2025, and now compounded by the perception of US strategic overreach in the Middle East — will express itself gradually but cumulatively in longer-duration portfolio positioning.

The interest rate implications are the most immediate financial consequence for capital-intensive industries. If oil sustains above $100 through Q2 2026, the rate-cutting cycles that European and Asian central banks had begun will stall or reverse. This is particularly consequential for commercial real estate in Germany, the Netherlands, and Australia — markets where asset valuations had only just begun to stabilise on the assumption of declining financing costs. A six-month delay to rate normalisation, caused by an externally imposed energy shock, could push a fragile stabilisation back into distress territory in those markets.

For firms with operations spanning US and EU or UK jurisdictions, the sanctions divergence created by Washington’s Russia crude waivers creates a live compliance problem today. Legal and treasury teams should be mapping exposure now — enforcement timelines in these situations historically lag political decisions by months, creating a window of real risk before formal clarification arrives.

US-China Strategic Competition

China has responded to the war with calls for restraint, not action. That is a deliberate posture, not a failure of resolve.

Beijing sources approximately 13% of its crude imports from Iran directly, with a larger share of its total oil and gas imports transiting the Strait of Hormuz. Its energy supply is acutely disrupted. Yet it has every incentive to remain passive: the US is drawing carrier strike groups into the Gulf, degrading its Pacific deterrence capacity, and entangling itself in precisely the kind of open-ended Middle East commitment from which Washington has spent years attempting to extract itself.

China’s foreign minister, speaking at the National People’s Congress, called for an immediate end to military operations — while simultaneously confirming that the Trump-Xi summit scheduled for March 31 will proceed. The agenda, Wang Yi indicated, is already agreed. The tone was notably accommodative. Beijing wants the summit to succeed.

That combination — public criticism of the war, private eagerness for a bilateral summit — is strategically coherent. China gains leverage from the conflict’s continuation but also from positioning itself as the responsible power capable of helping broker an exit. The US capture of Venezuela’s Nicolás Maduro weeks before the Iran strikes — another partner with whom China had cultivated deep energy ties — reinforces a pattern Beijing will have noted carefully.

Outlook

The March 31 Trump-Xi summit is now the most consequential diplomatic event of the year, and its outcome will be shaped by a dynamic that neither side fully controls: the longer the Gulf conflict continues, the more leverage China accumulates at the table. Beijing will arrive having absorbed an energy disruption, having watched US Pacific deterrence thin, and having positioned itself publicly as a voice for restraint. Washington will arrive managing a war with rising domestic costs, midterm election pressure, and an economy absorbing an energy shock of its own making. The trade truce struck last October is the nominal agenda. The subtext is which power emerges from this period with greater strategic credibility.

The Gulf crisis has also materially altered the Taiwan calculus in ways that deserve direct board-level attention. US carrier strike groups repositioned to the Gulf represent a genuine reduction in the forces available for rapid Pacific deployment. Companies with significant manufacturing, logistics, or revenue exposure to Taiwan, the South China Sea shipping lanes, or South Korea should treat the current period as an elevated risk window — not because a Taiwan crisis is imminent, but because the structural conditions that would make one more likely to succeed from China’s perspective are currently better than at any point since 2022.

China’s energy response is also a long-term competitive dynamic. Redirecting imports toward Russia — which has spare capacity and a structural incentive to sell — cements the Russia-China energy axis in ways that will outlast any Gulf ceasefire. For Western energy companies and LNG exporters hoping to penetrate the Chinese market, this crisis has narrowed the commercial opportunity further.

Political Instability & Civil Unrest in Key Markets

The Gulf states are experiencing a stress test they spent years and billions trying to prevent.

Dubai has absorbed a disproportionate share of Iranian strikes across the Gulf — a deliberate targeting of a regionally symbolic and commercially significant city. The UAE’s defence systems have intercepted 93% of more than 1,100 incoming missiles and drones — but civilian infrastructure has been struck. Dubai airport cancelled thousands of flights. Wealthy residents chartered planes to depart rapidly. The Fairmont hotel on Palm Jumeirah was struck. The Burj Al Arab caught fire from drone debris.

One corporate lawyer familiar with the Dubai market articulated what many in the business community are concluding: the perception of the emirate as an invulnerable, apolitical commercial hub has been fundamentally undermined.

Saudi Arabia’s Shaybah oilfield — producing one million barrels per day — was targeted for the first time. The Ras Tanura oil terminal was shut down after drone strikes. Qatar has intercepted ballistic missiles and defended itself against Iranian fighter jets. Bahrain’s water desalination infrastructure was struck. These are not symbolic gestures — they are methodical attacks on the physical foundations of Gulf statehood.

Iran’s internal politics have fractured in ways that compound the military uncertainty. President Pezeshkian initially apologised to Gulf neighbours and indicated a halt in strikes against them. Senior military officials and politicians immediately contradicted him. Pezeshkian then reversed his own position under domestic pressure. Iran’s foreign minister has confirmed that military units are executing pre-set target lists without real-time oversight from the political leadership. Security analyst Dr. Andreas Krieg has specifically warned that Iran’s decentralised mosaic defence doctrine means the political leadership cannot guarantee any ceasefire will hold at the tactical level.

Writing for the Financial Times, Richard Haass1, former president of the Council on Foreign Relations and Professor Lawrence Freedman of King’s College London offer timely reminders. Haass frames the strategic error with precision: this was a war of choice, not necessity. The US had viable alternatives — diplomacy, sanctions, covert action, continued deterrence — that were not exhausted before force was deployed. The argument for continuing the war to further degrade Iran’s military or achieve regime change faces the compounding problem that military force yields diminishing returns while simultaneously obstructing the emergence of any coherent Iranian leadership capable of negotiating an end.

Freedman2 draws attention to the poor precedents for this kind of intervention: Iraq in 2003 produced five years of intercommunal violence before any stabilisation; Libya in 2011 collapsed into civil war after external forces withdrew. Iran is a country of 92 million people with deep institutional structures. The nightmare scenario for Gulf states is not Iranian defeat — it is a wounded, destabilised Iran on their doorstep, embittered and rebuilding.

Outlook

The human geography of post-war Iran presents the most underappreciated long-term risk in this crisis. A country of 92 million that has experienced the killing of its supreme leader, sustained strikes on its energy infrastructure, and what its population will regard as a war of aggression imposed from outside does not emerge from that experience as a pacified neighbour. The Gulf states understand this acutely — they opposed this war precisely because they will live with its consequences long after US carrier groups return to the Pacific.

For the UAE specifically, the damage to Dubai’s commercial identity is a structural problem that will persist for years regardless of when the fighting stops. Dubai’s entire economic model rests on the perception of security, neutrality, and predictability. All three are now in question. The city-state will recover — it has done so before — but the terms on which global capital and mobile talent choose Dubai over a safer alternative have shifted. Companies reviewing regional headquarters decisions in 2026 will factor in what has happened here in ways that will not reverse quickly.

Saudi Arabia faces a different but equally serious challenge. The Vision 2030 programme — Crown Prince Mohammed bin Salman’s generational project to diversify the Saudi economy away from oil dependence — requires sustained inward investment, international partnerships, and regional stability. All three are impaired by this war. If Shaybah’s production capacity is disrupted for months rather than weeks, Saudi Aramco’s revenue projections — and by extension the funding assumptions behind Vision 2030’s megaprojects — require downward revision. International investors who had begun to treat Saudi Arabia as an emerging market growth story will reassess the risk premium accordingly.

The Lebanon dimension adds a further layer. Israel’s renewed assault on southern Lebanon — including strikes on civilian infrastructure in Beirut itself — risks a reactivation of Hezbollah at operational scale. A two-front conflict sustained across both Iran and Lebanon would place additional strain on Israeli military resources and prolong the regional destabilisation well beyond the Gulf theatre.

Off-ramp

The primary analysis assumes that conflict continues and the Strait of Hormuz remains effectively closed for several weeks, with oil above $90 and LNG markets severely disrupted.

An alternative path is a diplomatic off-ramp — brokered through Qatar and Oman, with possible Chinese facilitation — within the next two to three weeks.

In this scenario, both sides construct face-saving narratives. The Trump administration declares it has sufficiently degraded Iran’s nuclear and missile programmes. Iran’s interim leadership — whoever consolidates authority — declares it imposed unacceptable costs on US allies and Gulf infrastructure. The domestic calculus favours this for both parties: Trump faces rising pump prices and November midterm elections; Iran’s interim leadership, operating without a supreme leader and under sustained military pressure, has structural incentives to pause and reconstitute.

In the FT, Richard Haass argues that the US will ultimately have to return to the negotiating table on the same core questions it avoided before the war: what scale of Iranian nuclear programme is tolerable, what constraints on ballistic missiles and proxy support are achievable, and what sanctions relief is on offer. These questions will be no easier to answer in post-conflict talks. Indeed, they will be much harder.

That negotiating process rests on one critical condition: that Iran’s decentralised military command ultimately responds to political instruction. Given what Iran’s foreign minister has confirmed about pre-set target lists operating without real-time oversight, that condition cannot be assumed.

Even if a ceasefire materialises, the commercial implications differ materially from a genuine return to stability. Qatar has warned it will take weeks to months to restore normal LNG delivery cycles. Shipping backlogs will persist. War-risk premiums will remain elevated well above pre-conflict levels. Dubai’s reputation as a neutral, stable hub has been structurally damaged regardless of when the shooting stops. And the political conditions that enabled normalisation between Gulf states and Israel — conditions that took years to construct — have been set back by a decade.

The underlying tensions remain entirely unresolved: Iran’s nuclear ambitions, Israel’s regional posture, US reliability as a security guarantor. Investors who treat a ceasefire announcement as a signal to return to pre-war positioning in Gulf assets should treat that instinct with significant caution.

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In addition to the footnotes below, I studied opinions from Foreign Affairs, the Financial Times, Kings College London, IISS and RUSI to help develop positions and outlooks. My thanks to a number of regional and defence experts, policy makers and practitioners for taking the time to discuss such a wide range of issues.