Oil has risen more than 50% since early July as the Strait of Hormuz conflict enters its third month, and the story has stopped being contained to energy markets. It is now one of the inputs the Federal Reserve is weighing in a rate decision this afternoon that CME FedWatch prices at a 92.7% probability of a hike. For Canadian portfolios, the chain runs from a shipping lane half a world away to a U.S. policy rate to the Canadian dollar and the TSX energy sector, and every link in that chain is now live at once.
What Actually Happened
U.S. forces struck two Iranian rocket launchers on Larak Island in the Strait of Hormuz earlier this month, targeting Islamic Revolutionary Guard Corps positions described as preparing to deploy sea mines. Iran retaliated with ballistic missiles and drones against U.S. installations in Jordan; Jordanian air defences intercepted eight of them. Commercial shipping traffic through the strait has collapsed to roughly five vessels a day, well below the pre-conflict norm, and a Saudi east-west pipeline remains offline from separate attack damage, with officials expecting resolution within days rather than weeks.
The United States has also built a naval blockade around the strait: 83 vessels redirected, three disabled, two boarded as of late August, according to reporting on the standoff. None of this is new information in the sense of being unprecedented, the conflict has run for two months, but the scale of disruption to physical shipping has not eased even as prices occasionally pull back on demand or inventory data.
Base Case Versus Tail Risk
The base case remains that this is a contained, high-cost disruption rather than a full closure of the strait: enough tankers are still moving, redirected or escorted, that global supply has not broken. The tail risk is a wider mining campaign or a strike that damages a major loading terminal rather than a rocket launcher, which would move oil in a single trading session rather than over a quarter. HDQ has flagged this distinction before and it still holds: the market is pricing an elevated but ongoing disruption, not the low-probability scenario where the strait closes outright.
The chart below tracks WTI crude through the conflict, from a pre-escalation low near $68.55 a barrel in early July to a close above $103.81 today, including a brief pullback tied to a 7.1 million barrel U.S. inventory build reported this week.
WTI has climbed in three distinct legs since early July, tracking escalation in the Strait of Hormuz conflict, with the most recent pullback tied to a reported U.S. inventory build rather than any easing of the underlying disruption. Source: Investing.com, FRED.
The Canadian Transmission Channel
The direct beneficiary is the TSX energy sub-index, which has tracked the oil move closely while the broader composite has not kept pace, a divergence the Market Desk covers in detail today. The less obvious channel runs through Ottawa and Washington simultaneously: elevated energy prices are the single largest driver of Canadian headline inflation this month, and the same energy story is a documented input into a Federal Reserve decision that, if delivered as expected, widens the policy gap between the Bank of Canada and the Fed. A Canadian advisor with clients concentrated in energy names is holding a direct beneficiary of the conflict. A Canadian advisor with clients exposed to a softening currency or import-driven inflation is holding the other side of the same story.