WS #2070

The Strait of Hormuz crisis remains the dominant market signal, with new escalations and policy responses emerging. The Trump administration is reportedly considering plans to occupy or blockade Iran's Kharg Island to pressure Iran to reopen the Strait, as reported by Axios and corroborated across multiple jetstream.bsky.priority messages, including restatements and breaking alerts. This represents a major military escalation, with Iran exporting 90% of its oil through Kharg Island, and the IRGC warning that a U.S. attack would significantly impact oil prices. Concurrently, Iran continues to strike regional targets, with reports of a second-day attack on Kuwait's refinery and 16 commercial boats destroyed in U.S.-Israeli attacks on Bandar Lengeh port, heightening supply disruption risks as nearly 20% of global oil supply remains halted. Counter-signals are emerging that could dampen energy price spikes. Treasury Secretary Scott Bessent indicated the U.S. may remove sanctions on 140 million barrels of stranded Iranian oil to boost supply and lower prices, directly addressing the supply disruption. This follows previous reports of U.S. and allied efforts to unchoke the Strait, creating a policy response that could cap oil price increases. Additionally, the International Energy Agency (IEA) warned of the biggest energy crisis ever, urging work-from-home and reduced travel to cut oil demand, with road transport accounting for 45% of global oil demand, potentially mitigating bullish pressures. Other developments include the NHTSA denying and closing a defect petition on 2.26 million Tesla vehicles in the U.S., potentially removing regulatory overhang for the company. The Indian rupee weakened 1% against the dollar, reflecting broader currency market stress from the crisis. Lukoil reported a $12 billion loss in 2025 due to U.S. sanctions forcing foreign asset write-offs, impacting global oil production. ECB's Makhlouf emphasized managing uncertainty and achieving a 2% inflation target, with no pre-determined rate path, while UK gilt yields rose 4-5 bps, indicating bond market reactions to geopolitical tensions.