World in a Week: Hormuz Revives Specter of Oil Shock

The week began with rising tensions in the Middle East, after Iran announced the closure of the Strait of Hormuz, entering a new phase in the confrontation with the United States, with the exchange of military strikes between the two sides, raising concerns about oil flows through the waterway.

This led to a sharp decline in navigation in the strait, while OPEC lowered its forecasts for global oil demand growth for this year, amid mutual accusations between the United States and Iran of violating the ceasefire agreement.

US President Donald Trump also announced that Washington intends to obtain compensation for insuring the strait, along with resuming the blockade of Iranian ports, before backing down from the compensation demands, amid international condemnation of imposing any fees on ships transiting the strait.

The escalation cast a shadow over energy markets, as oil prices rose sharply this week amid fears of a closure of the Bab el-Mandeb Strait, and amid warnings from the IMF that the world is less prepared to face a new oil shock with declining reserves.

On the U.S. economic front, inflation slowed in June but remained above the Federal Reserve's target, while Fed Chairman Kevin Warsh affirmed his commitment to curbing inflation, strengthening market bets on monetary tightening in the coming months.

At the same time, markets continued to monitor the repercussions of the war in the Middle East, while chip stocks on Wall Street faced a sharp sell-off, pushing them into bear market territory amid growing concerns about the sustainability of spending on artificial intelligence.

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