Hormuz Sees Only 15% Pre-War Traffic, Oil Prices and Dollar Pressure Global Assets

On July 22, Middle Eastern risks further escalated. Trump stated he had "no interest in meeting" with Iran and threatened to strike the mountainous region allegedly housing underground nuclear facilities; Iran retaliated by claiming that if its nuclear facilities were attacked, all U.S. and allied interests in the region would become targets. Although Pakistan continues to play a mediating role, the U.S. signals demanding Iran to "pay a price" indicate that military pressure will remain in the short term.

What is truly noteworthy is the energy transport data. The commercial traffic through the Strait of Hormuz has dropped to about 15% of pre-war levels, with many international shipowners withdrawing; two tankers carrying Saudi crude even turned around in the Red Sea to reroute to the Suez Canal. The originally proposed alternative route through the Red Sea has also become uncertain due to threats of blockade from Houthi forces. Meanwhile, Kazakhstan announced a suspension of oil transport via the Black Sea, indicating that global energy supply risks have evolved from a "single strait issue" to a situation where "both routes are under pressure".

This supply shock is altering the policy backdrop for the Federal Reserve. The latest ADP data shows a cooling in private sector hiring in the U.S., but market bets on an interest rate hike this fall have not dissipated, as rising oil prices may reignite inflation. In other words, the Fed is facing a combination of "slowing employment and rising energy inflation," rather than just a simple economic slowdown. This is also why U.S. $8 trillion money market funds continue to shorten duration and increase allocations to overnight and floating-rate assets—large funds prefer to sacrifice some yield to retain flexibility for repricing.

The foreign exchange market also reflects rising funding costs. The dollar briefly rose above 163 against the yen, reaching a new low since 1986. Even though the Japanese government had previously intervened with over 11 trillion yen, it struggled to withstand the triple pressure of rising oil prices, increasing U.S. Treasury yields, and carry trades. The market has viewed 165 as the next observation point, with some institutions even predicting a challenge to 170 within the next year.

In terms of trade policy, the Trump administration is paving the way for new measures following the expiration of the 10% temporary tariffs, with new tariffs on dozens of countries expected as early as this week. It also announced that if generic drug manufacturers do not relocate production back to the U.S. within two years, they will face a 100% tariff in 2028, escalating to 200% in 2029. This design of "setting a deadline and then increasing tariffs in stages" is essentially forcing a premature restructuring of global supply chains, with India's generic drug industry being the first to bear the brunt.

New cost signals are also emerging in the tech supply chain. TSMC is reportedly set to raise wafer foundry prices by up to 10% starting in 2027; OpenAI has acknowledged a hacking incident involving Hugging Face, indicating that the security costs of AI models and the open-source ecosystem are rising. The AI industry is no longer just a competition for computing power but has entered an era of comprehensive costs involving "wafers, electricity, cybersecurity, and supply chain resilience".

I believe the most critical observation point now is not whether oil prices can briefly break $100, but rather the duration of the disruption in energy transport. If the low traffic conditions in Hormuz and the Red Sea persist for several weeks, global inventory buffers will be quickly depleted, and the Fed's hawkish pricing may be further reinforced, prolonging the time the dollar and short-term rates remain elevated. In this environment, the correlation between assets will increase, and the importance of liquidity and cash management will clearly outweigh the pursuit of high-volatility narratives.

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