Oil above $90: Markets amid Hormuz, Bab el-Mandeb, interest rates, and the return of technology

Between Saturday, July 18th, and Tuesday, July 21st, financial markets had to absorb a renewed increase in geopolitical risk, concentrated along the main Middle Eastern energy sea lanes. The reduction in transit through the Strait of Hormuz and the Houthi threat against Bab el-Mandeb transformed oil into the main indicator of risk appetite, impacting stocks, bonds, metals, and currencies.

The double risk on oil routes

The primary source of tension remained Hormuz, through which, before the war, approximately a fifth of the world's oil and liquefied natural gas transited. The attacks on oil tankers and the reduction in traffic confirmed that the market is no longer considering merely a theoretical risk, but a concretely weakened export capacity.

Adding to this threat is the threat from the Red Sea. The Houthis have announced a naval blockade against Saudi Arabia, prompting two tankers carrying Saudi crude headed for Asia to reverse course. A disruption of the Bab el-Mandeb would particularly impact flows from the Saudi port of Yanbu: over 3 million barrels a day could be forced to circumnavigate Africa, with delays of up to a month. In a prolonged closure scenario, some estimates indicate a possible return of crude oil to the $115-$120 range , with impacts also on freight rates, insurance, diesel, and aviation fuel.

Brent returns to the center of the macroeconomic picture

Brent crude closed at $89.22 a barrel on Monday , after surpassing $91 during the session. On Tuesday, it fell back to $91.34 , while WTI reached $85.03 . The trend reflects not only the potentially unavailable crude oil, but also the increasing difficulty in transporting it to refining centers.

Higher oil prices immediately rekindled the inflation issue. The yield on the 10-year U.S. Treasury note rose to 4.598% , while markets began to price in at least a Federal Reserve rate hike by the end of the year. The result was a strengthening dollar and pressure on assets most sensitive to the cost of capital.

Wall Street thus began the week cautiously: the Dow Jones Industrial Average lost 0.59% , the S&P 500 0.19% , and the Nasdaq 0.05% . The decline was limited, but it showed how energy costs have once again begun to compete with corporate earnings and artificial intelligence in determining expectations. The European STOXX 600 also ended Monday's session down, feeling the same interplay between energy, inflation, and interest rates.

Asia rebounds, but the technology test remains open

On Tuesday, stocks improved thanks to the recovery in semiconductors. Japan's Nikkei rose 3.26% and the Topix 2.44% , recovering some of the previous week's losses. The move followed the rebound in the South Korean technology sector and was fueled by the search for bargains following the sharp correction in artificial intelligence stocks.

The recovery, however, hasn't erased valuation concerns. The US semiconductor sector entered a bear market after falling more than 20% from its late-June highs. Attention has therefore shifted to the results of major technology companies: the market is eager to understand whether earnings growth can still justify the exceptional investments made in AI.

The Asian rebound therefore suggests that investors' willingness to buy corrections has not disappeared. However, it remains contingent on the stabilization of oil prices and yields: a renewed acceleration in energy prices could again hit growth stocks, which are particularly sensitive to rising discount rates.

Gold and copper tell two different stories

Gold has shown a less linear reaction than traditional phases of risk aversion. On Monday, it fell towards $4,008 an ounce , penalized by rising yields and a stronger dollar. Rising oil prices, while increasing inflation risk, have reinforced expectations of higher rates for longer, reducing the attractiveness of a zero-coupon asset.

On Tuesday, the precious metal recovered 1.7% , reaching $4,077 , supported by speculation of a temporary truce between the United States and Iran and by technical buying. This movement confirms that gold is oscillating between two opposing forces: the demand for geopolitical protection and the opportunity cost imposed by high yields.

Copper, on the other hand, was supported by industrial factors. The benchmark contract on the London Metal Exchange rose to $13,633 per tonne , thanks to Chinese refined copper imports reaching a nine-month high. Inventories monitored in Shanghai have fallen by more than 80% since mid-March, and those in LME warehouses have fallen by 24% since the end of May. Chinese demand, smelter maintenance, and reduced supplies have thus outweighed fears of a global slowdown.

UK and Canada add political risk

In the UK, Andy Burnham's arrival at Downing Street has made the bond market more nervous. Promises of greater fiscal flexibility have pushed the 10-year gilt yield to 5.04% and the 30-year gilt yield to 5.75% . The pound has fallen to around $1.343 , recovering only partially following the appointment of John Healey as Treasury Minister. With debt high, inflation above target, and rising energy costs, investors are demanding credible hedges for any increase in government spending.

Finally, in the United States, the announcement of 50% tariffs on approximately $20 billion in Canadian imports has reopened the trade front. The measures target consumer goods and industrial materials, though they exclude energy and critical minerals. The measure has weakened the Canadian dollar and increased the risk that geopolitical inflation and trade inflation will end up feeding off each other.

A market dominated by the cost of energy

Overall, the period has shown a market still capable of recovering, especially in the hardest-hit technology sectors, but increasingly dependent on the evolution of the oil price. As long as Hormuz and Bab el-Mandeb remain under threat, yields, the dollar, and interest rate expectations will continue to react rapidly to any diplomatic or military news.

The real question isn't just how much crude oil might be missing, but how long the global economy can tolerate higher energy costs, longer routes, and a less accommodative monetary policy. The rebound in Asian stock markets and semiconductor prices demonstrates that capital is still willing to take risks, but Brent's return above $90 reminds us that, at this stage, energy geopolitics still dictate the markets' pace.