Shipping transits through the Strait of Hormuz remained largely disrupted on Monday morning, according to the latest Bloomberg data, even as Iran and Oman reportedly moved closer to a deal on reopening the critical maritime chokepoint.

The Strait of Hormuz handles roughly one-fifth of global oil consumption, making it the world's most important energy transit bottleneck. Any sustained disruption to flows through the narrow waterway — which connects Persian Gulf producers including Saudi Arabia, the UAE, Kuwait, Iraq, and Iran to global markets — has outsized implications for energy prices and freight networks worldwide.

Brent crude futures traded near $85 a barrel as markets priced in the possibility that an agreement to restore shipping traffic through the strait could be imminent. However, global supply-chain stress remains near its highest level since the COVID-19 pandemic, and any normalization of shipping flows could take months even if traffic resumes. Historical shipping crises — from port congestion during COVID-19 to the Red Sea diversions caused by Houthi attacks — show that chokepoint disruptions leave lasting residue on freight rates, route optimization, and inventory strategies long after the initial shock subsides.

UBS senior international economist Pierre Lafourcade highlighted the bank's proprietary Global Supply Chain Stress Index, which showed that although pressures eased modestly in July from their highest level since the pandemic, disruptions stemming from the Hormuz chokepoint continue to strain global shipping networks.

The median reading of the bank's 23-component Global Supply Chain Stress Index fell 0.4 standard deviations from June but remained 0.9 standard deviations above its pre-Iran conflict level. The average reading declined 0.3 standard deviations from June while remaining 1.35 standard deviations above February — the pre-US-Iran war baseline.

Lafourcade provided additional context:

Marginal relief for supply chains relative to the June peak

With the July data now complete, our Global Supply Chain Stress Index is showing a modest easing in pressure from the June reading, which marked the highest level of stress since the pandemic. The median of the 23 component series (blue line) now stands at 1.26 standard deviations, 0.9 sd units higher than prior to the Iran conflict but 0.4 units off the June reading. In average terms (red line), the indicator is up 1.35 sd units relative to February, but down 0.3 sd units relative to June, which appears to be the high watermark. Markets are optimistic about some form of imminent resolution, as reflected in the ~$20/b drop in Brent since the July 23 peak, but stress in supply chains is likely to linger on far beyond any implemented accord.

Divergence across components is increasing

The indicator is constructed as the cross-sectional average of z-scored series — a first-order approximation to the data's first principal component. The indicator most directly capturing the supply shock nature of the Hormuz bottleneck is our measure of seaborne oil and gas flows (with the sign flipped to indicate rising stress). All other components reflect the shock more indirectly. Oil and gas shipping volumes in the Asia region have retraced about half of the drop since the Strait closure.

Meanwhile, the global volume of other cargo shipping remained roughly unchanged. Delivery times improved in Asia ex-China but worsened in the US. The greatest relief came from lower air-freight costs in July, while shipping costs instead ratcheted up again across all major reporters (Baltic, Harper Petersen, Drewry, and Freightos).

The longer disruptions persist through the Hormuz chokepoint, the greater the knock-on effects across global supply chains become — from higher energy and freight costs to depleted inventories, longer delivery times, and renewed inflationary pressure — all of which remain ongoing concerns.

Source: OilPrice.com, via ZeroHedge