The reopening of Houthi in June is "unimaginable"! This bank believes that the summer oil prices may hit record highs, thus impacting the stock market.

The passage of the Strait of Hormuz is essentially blocked, reshaping the global energy pricing logic. However, the market's widespread bet on a "reopening in June" may significantly underestimate the complexity of the crisis. Helima Croft, the head of global commodities at the Royal Bank of Canada (RBC), is extremely skeptical about the possibility of a "reopening in June" or a short-term recovery of shipping to levels before the Middle East conflict. She describes the market's optimism as "magical thinking," based on a very fragile assumption: that if the economic pain is deep enough, it will automatically trigger some policy lever to allow oil tankers to pass through the strait again. In contrast, Goldman Sachs predicts a return to $90 per barrel for Brent by the end of the year, based on a "recently initiated, reopening by the end of June" scenario. Croft strongly disagrees, believing that the market significantly underestimates the duration and impact of the blockade. She warns that if the daily production shutdown of approximately 12.5 million barrels continues, cumulative losses by the end of the month will exceed 1 billion barrels; if extended to June, losses will approach 1.5 billion barrels. With the peak summer demand approaching and significant inventory depletion, oil prices are "highly likely to surpass the heights of the Russia-Ukraine conflict and approach the peak of 2008," ultimately achieving rebalancing through demand destructionbond yields are expected to significantly rise, with the stock market facing a risk of significant decline. The narrow path to reopening limits diplomatic and military options The current market narrative of a "reopening in June" primarily bets on two paths: negotiated resolution or unilateral U.S. military intervention. However, according to Helima Croft, neither scenario is very optimistic. Militarily, the U.S. theoretically could deploy over 100,000 ground troops to forcibly open the strait, but the White House has no interest in a large-scale, protracted Middle East war, which also goes against its "America First" campaign promise. Croft believes that any limited action cannot achieve the goal of forcing the strait to reopen, and a full-scale invasion is not under consideration. Diplomatically, reaching an agreement in the near term is also very difficult. The uranium enrichment capabilities and stockpile issues in Iran remain unresolved, and more importantly, even if the nuclear issue is resolved, Iran will not easily relinquish control of the strait the strategic leverage of this waterway is now as important as the nuclear program itself, and it is almost impossible for Iran to give it up willingly. In addition, the White House had hoped to create enough economic pressure through a "double blockade" to force Iran to loosen its control of the strait. Early predictions even suggested that Iran's oil storage tanks would be filled within 13 days, forcing authorities to compromise quickly. However, the reality is that Iran still has several weeks to months of buffer capacity in storage, the leadership has shown resilience, and the authorities still firmly control the security forces with no visible internal cracks. Therefore, Croft believes that this strategy is unlikely to change Tehran's strategy significantly before June. The market will continue to focus on whether financial pressure will create cracks in regime stability, but currently, the "double blockade" is not enough to influence Iran's decisions. Even if reopened, the recovery of traffic will be long Even if the Strait of Hormuz eventually reopens in some form, as long as Iran retains operational control, the actual volume of traffic will be much lower than pre-war levels. Croft points out that as long as Iran remains under sanctions, Western companies will hesitate to pay tolls imposed by Iran, and the ongoing risk of maritime attacks will continue to inhibit shipping companies from returning. Several leading experts in the shipping industry have already stated that a reopening scenario under Iranian control will limit traffic, and Iran's clear failure in military operations and unrestricted transit passage in the strait are the real prerequisites for a complete restoration of maritime traffic. Taking the situation in the Red Sea as a reference: despite the ceasefire agreement reached between the U.S. and Houthi militants a year ago, maritime traffic in the Red Sea is still roughly 56% lower than before the conflict, with many major shipping companies continuing to avoid the Strait of Hormuz due to security concerns. Croft believes that even if the Strait of Hormuz achieves some form of normalization, traffic is likely to only reach the restricted levels currently seen in the Red Sea. And reaching this level itself will take a considerable amount of timethe scheduling and logistical operations of ships after the reopening will take several weeks, not to mention the time needed for shipping companies to assess risks. Oil prices may approach the peak of 2008, putting pressure on the bond and stock markets Croft believes that as the peak summer demand season begins and inventories are significantly depleted, oil prices are highly likely to surpass the highs seen during the Russia-Ukraine conflict and approach the historical peak of 2008. In this scenario, demand destruction will ultimately become the mechanism for market rebalancingonly when prices are high enough to suppress consumption can the supply-demand gap be bridged. However, before demand destruction truly occurs, bond yields are expected to rise significantly. Global long-term interest rates are already showing signs of breaking through, inflation pressures are mounting, and leverage is rapidly expanding, creating a tense macro environment. The key point is that the stock market is now becoming highly sensitive to signals from bondsunder this backdrop, the double surge in oil prices and interest rates is likely to lead to a significant stock market decline that is not gentle. This article was originally posted on Wall Street News; Author: Li Jia; GMTEight Editor: Chen Xiaoyi.