Hormuz Closed, Euphoric Markets: A Pricing Error

Hormuz Closed, Euphoric Markets: A Pricing Error

Markets celebrate an unsigned peace while exports, shipping, and diplomacy signal that systemic risk remains high.

On Friday, April 17, markets embraced the most reassuring narrative: the war nearly over, the Strait of Hormuz reopened, oil prices falling, and inflation back under control. Wall Street closed with the S&P 500 at 7,126.06 (+1.20% on the day, +4.53% for the week), the Nasdaq at 24,468.48 (+1.52%; +6.84% weekly), and the Dow Jones at 49,447.43 (+1.79%; +3.2% weekly). The Russell 2000 also posted a record close. In Europe, the STOXX 600 rose to 626.58 (+1.6%), the DAX closed at 24,702.24 (+2.27%), the CAC 40 at 8,424.14 (+1.95%), and the FTSE 100 at 10,667.63 (+0.7%).

But beneath the rally lies a clear disconnect between asset pricing and logistical reality. Bloomberg reports that Saudi crude exports in March collapsed by 50% to 3.33 million barrels per day, down from about 6.66 million in February, despite Riyadh mitigating the impact by diverting some flows toward the Red Sea. Bloomberg also notes that, after the ceasefire, only “a handful” of ships have passed through Hormuz, compared with roughly 135 daily transits under normal conditions. This does not allow for a single precise percentage decline across all Gulf exports, but it provides two key data points: Saudi exports halved during the full month of disruption, and traffic through the strait remains at highly abnormal levels—orders of magnitude below normal.

This is the first critical point: markets priced in the announced reopening, not the actual one. Reuters reported that the April 17 rally was triggered by Iran’s announcement of a “full reopening” of Hormuz to commercial shipping and by statements from Donald Trump suggesting an imminent deal; on the same day, U.S. crude plunged by more than 11%, easing fears of an inflation shock and supporting equity repricing.

The problem is that less than 24 hours later, the narrative began to crack. Reuters reports that on April 18 Tehran reaffirmed military control over the strait, while Trump stated that Washington would not be “blackmailed” and that the U.S. naval blockade would remain in place until an agreement is reached. Official Iranian sources, echoed by IRNA, openly refer to control of the strait and limitations tied to the persistence of the U.S. blockade; Iran’s Supreme National Security Council added that the reopening would be temporary and conditional on compliance with the ceasefire. In other words: there is no normalization—at best, there is reversible, politicized, and militarized access.

On the diplomatic front as well, optimism has outpaced reality. Talks led by Vice President JD Vance have not produced an agreement: Reuters reports that the U.S. delegation went to Islamabad with low expectations and skepticism about the immediate reopening of Hormuz; Time and other accounts agree that the negotiation round ended without a deal. Meanwhile, Benjamin Netanyahu stated in official remarks on April 13 that he had spoken with Vance and clarified that for Washington “the central issue” is the removal of all enriched material, while from Israel’s side “the fighting continues continuously.” This is the opposite of a peace already secured.

Tehran, for its part, is leaving little room for conciliatory interpretations. Officially, Iran maintains that the strait is under national control and that the core issue is the U.S. naval blockade. IRNA reported that Parliament Speaker Ghalibaf reaffirmed Iranian control over Hormuz and warned that restrictions will persist if the U.S. maintains its blockade; already on Saturday, Iranian military authorities had announced the restoration of strict military oversight. Even Friday’s reopening announcement for commercial vessels was framed as temporary and conditional. This is not a strategic retreat by Tehran—it is coercive management of a geopolitical choke point, using maritime leverage as a negotiating tool.

China, meanwhile, is moving along two coherent tracks. The first is diplomatic: the Chinese Foreign Ministry has called for an immediate halt to military operations, a return to negotiations, and has supported a UN draft resolution with Russia focused on de-escalation, dialogue, and freedom of navigation. The second is commercial-strategic: Beijing continues to oppose U.S. unilateral sanctions “lacking basis in international law or authorization from the UN Security Council.” When asked specifically about U.S. threats to sanction buyers of Iranian oil, spokesperson Guo Jiakun reiterated this position on April 16. In geopolitical terms: China has no incentive to exit Iranian crude flows to comply with Washington, especially at a time when Asian energy security is already under strain.

This aspect is crucial for markets. If the United States truly tightens secondary sanctions against buyers of Iranian oil, the conflict ceases to be regional—it becomes a test of Washington’s ability to impose extraterritorial energy discipline on Beijing. A real restriction on Sino-Iranian trade would increase the risk premium on crude, push Asian importers toward alternative routes and grades, and place renewed pressure on shipping costs, insurance, refining, and global industrial supply chains. China itself continues to link the Hormuz crisis to risks for the “world economy and global energy security.”

Asian markets, notably, tell a less linear story than Western euphoria suggests. The Nikkei closed on April 17 at 58,475.90, down 1.75%; Hong Kong’s Hang Seng fell 0.89% to 26,160; China’s CSI 300 slipped 0.17% to 4,728.67. There have also been strong markets in Asia—Reuters notes South Korea’s KOSPI near records and Taiwan at new highs in previous sessions—but the overall message is that “peace” has been priced in far more selectively than the triumphalism seen on Friday in New York and Europe would imply.

The real question, therefore, is not whether markets were right to celebrate a tactical easing of risk. That part is rational: if oil drops by roughly 9–11% in a single session because Hormuz appears to reopen, indices sensitive to high energy costs respond accordingly. The correct question is whether it was justified to push valuations to historic highs and near-normalized multiples when: 1) no definitive U.S.-Iran agreement exists; 2) Vance-Tehran talks have not produced a deal; 3) Tehran continues to assert military control over the strait; 4) the U.S. naval blockade in the Gulf of Oman and toward Iranian ports remains active; 5) commercial traffic is still far from normal volumes. On these five points, the answer is no.

The euphoria, therefore, is only partially justified. It is justified as a short-term repricing after the risk of a prolonged full closure of Hormuz. It is not justified as a bet on an imminent and linear end to the war. Markets are treating as transitory a crisis that remains structural: energy, maritime, military, and potentially Sino-American. Reuters had already observed on April 14 that U.S. equities had recovered all war-related losses while oil remained at punitive levels—a classic sign of divergence that may not last if logistical reality fails to confirm the financial narrative.

Are we at the beginning of the largest global financial crisis of the past 70 years? It is difficult to say today, but the available data suggests caution and discipline, as signs of a potentially deep and imminent crisis are emerging, and it is increasingly clear that the situation will not be resolved by a single post or reassuring promises. It would therefore be a mistake to interpret the rally of April 17 as proof that the worst is behind us. The more serious reading is this: markets have priced in a de-escalation that does not yet exist in reality. If in the coming sessions we do not see a verifiable normalization of flows through Hormuz, a concrete easing of the U.S. naval blockade, and a genuine diplomatic agreement, the rally risks proving fragile. Adding further complexity are doubts about the very foundations of the war: U.S. Director of National Intelligence Tulsi Gabbard stated in an official setting that “Iran’s uranium enrichment program has been destroyed. Since then, Iran has made no attempt to resume enrichment,” adding that facilities had been “sealed with concrete.” This assessment directly contradicts the narrative of an imminent nuclear threat used to justify the conflict. If the strategic premise itself appears at least controversial, then current market euphoria rests not only on a peace that has yet to be achieved, but also on geopolitical foundations that are far less solid than commonly portrayed. In this context, rather than marking the start of a new bull cycle, the rally may instead prove to be a precursor to far deeper volatility.