A fragile ceasefire framework and a related Memorandum of Understanding expired this week, leaving the Middle East in a prolonged state of limbo that analysts warn could escalate into broader disruption. Wolfe Research, in a Tuesday note, described the stalemate as more entrenched than ever, with Iran signaling a shift toward a "fully offensive" posture while U.S. and Israeli forces maintain a deterrent stance following a joint assault in late February.
The economic risk centers on the Strait of Hormuz, where tanker traffic has "all but stalled" as shipping companies and insurers grow wary of potential attacks. The United Kingdom Maritime Trade Operations agency reported Tuesday that an outbound vessel transiting the strait was struck by an unknown projectile, causing engine room damage and a crew casualty. Brent crude futures rose above $90 per barrel, reaching $91.60 in intraday trading, up 2.25% on the session.
Iran has repeatedly threatened to disrupt oil flows through the strait, a critical chokepoint for global crude supply, and a senior Iranian official told Reuters the country is prepared to take "difficult decisions" to escalate tensions. Meanwhile, U.S. President Donald Trump stated Washington would not extend the expired MoU and claimed the administration had established a back channel with Iran’s Islamic Revolutionary Guard Corps—a claim Iran later denied. Trump also threatened military action against Oman, which has pursued its own diplomatic efforts with Iran to reopen the strait.
Wolfe Research analysts Tobin Marcus and Chutong Zhu argued the U.S. economy could withstand the current pressure, noting that oil prices, while elevated, remain "basically sustainable" absent a major disruption. They pointed to stable inflation breakevens and a decline in shorter-term Treasury yields since the July Federal Open Market Committee meeting as signs that energy-related risks are not yet straining financial markets. The analysts cautioned, however, that covert oil flows out of the Gulf—reportedly continuing despite sanctions—could mitigate the impact of any deliberate disruption.
The analysts’ assessment contrasts with the heightened geopolitical rhetoric, suggesting that while the situation remains volatile, the economic fallout may be contained—for now.
