Recent market moves show little sign that traders are preparing for a long-term closure of the strait of Hormuz or a new global oil crisis, according to Ryoji Musha, president of Musha Research in Japan.
Since the Iran-related conflict flared on February 28, the S&P 500 has erased its earlier losses and now trades about 1% below its record high. The technology-heavy Nasdaq Composite has climbed 1.59% to a record 24,102.70, while the S&P 500 closed at an all-time high of 7,041.28 after gaining more than 10% from its late-March low.
Oil futures point to confidence in supply
Oil futures pricing also reflects calm expectations. Near-term contracts remain elevated, but prices for delivery in six months have eased to around 70 dollars per barrel. This structure suggests traders largely expect any supply disruption to be temporary rather than the start of a prolonged squeeze.
Musha argued that this outlook is grounded in structural shifts in the global economy. Dependence on crude oil has fallen sharply since the 1970s. In Japan, oil’s share of the energy mix has dropped from 76% during the first oil crisis to 35% in 2024.
He also highlighted that Saudi Arabia and the United Arab Emirates have pipeline networks that offer partial alternatives to shipments through the strait of Hormuz, reducing the impact of any chokepoint disruption.
Limited incentives for Iran to close the strait
Musha said a total shutdown of the strait of Hormuz would run counter to Iran’s own economic interests, as the same route is vital for its exports and imports. This self-limiting factor is one reason markets are not pricing in a sustained block.
Japan, however, remains vulnerable to higher import and shipping costs should tensions escalate. Even so, trading behavior to date does not reflect expectations of a broad, systemic oil shock.
Gap between media narrative and market signals
Analysts have noted a divergence between alarmist media coverage and relatively muted financial signals. Equity market strength, coupled with the oil futures curve, indicates that traders are bracing for a short-lived disturbance rather than a structural global supply crunch.
Underlying this stance are two core assumptions: reduced energy intensity in major economies and more diversified transport routes for crude. These changes are seen as buffers against a repeat of the 1970s-style oil crises.
Structural shifts, but lingering vulnerabilities
Despite the more resilient energy landscape, some research points to lingering weak spots. Logistical vulnerabilities, combined with behavioral reactions such as stockpiling and speculative trading, could still amplify pressure on exposed countries if conditions deteriorate. Economies like Japan and South Korea, which rely heavily on imported energy, would be particularly at risk.
In this context, current pricing suggests traders expect a contained, temporary shock. But analysts warn that if events deviate sharply from this base case, the economic fallout could be magnified by today’s calm positioning and relatively low level of hedging against extreme scenarios.
Risk appetite returns as rate fears ease
The perception of limited, manageable risk is underpinning a powerful rally in growth-oriented assets. The surge in the Nasdaq Composite and the S&P 500’s push to fresh highs show capital rotating back into segments that benefit most from economic expansion, rather than defensive havens.
The equity rebound, following a drop of more than 9% at the onset of the conflict, signals that risk appetite has quickly re-emerged. Traders are positioning for continued growth instead of prolonged stress.
A key supporting factor is the belief that any energy-driven rise in inflation will be brief. March’s Consumer Price Index hit 3.3%, boosted by higher energy costs, but futures markets imply a strong probability that the Federal Reserve will keep rates unchanged at its April meeting.
Stable rate expectations support growth assets
Expectations for steady policy rates reduce the incentive to hold cash or long-term government bonds, pushing more capital toward higher-growth, higher-volatility assets. Longer-term inflation expectations remain anchored near the Fed’s 2% target, reinforcing the view that geopolitical tensions will not derail the broader economic path.
For traders holding portfolios rich in high-risk assets, current conditions are being driven by abundant liquidity and upbeat sentiment. The dominant narrative assumes the conflict will stay contained and will not evolve into a wider regional or global shock. As long as that assumption holds, technology and other speculative segments are likely to remain strong, much as they have over the past dozen trading sessions.
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