The oil majors are about to report booming profits. These smaller stocks

I was all set to write this week’s piece highlighting some of the optimism around Iran and energy markets. Then Iranian militants launched a surprise missile attack on U.S. forces in Jordan. The barrage was repelled before it could do any damage. But the message seems clear: there are those in Iran who will benefit from continued fighting. Whether it’s because they want to force the U.S. and its allies into a harder bargain, they are fearful of their own outcomes, or something more sinister, markets and investors need to be ready for anything to happen at any time.

Ahead of that, the fragile ceasefire – don’t call it ‘peace’ – sent sellers into the global oil market. Prices went from over $90 back to the high $60s and then briefly back over $90 on the latest attacks. A nearly 40% pop from July lows to July highs is a huge move for oil.

One question some are asking is, with all that’s going on, why aren’t oil prices even higher? JPMorgan analyst Natasha Kaneva says it may be as simple as a market that “seems reluctant to replace risk repeatedly” because investors view a “prolonged stalemate as unlikely” and have to price in some kind of resolution.

The prediction markets tell a similar story. Kalshi traders see a 65% chance that WTI crude ends the year at $75 or higher. But they’re far less convinced oil is headed for another major spike, pricing in just a 32% chance of $90-plus crude. In other words, the market sees higher prices but not necessarily a full-blown oil shock.

While the world waits for “some kind of resolution,” one thing that seems increasingly clear is that Iran continues to ‘reprice’ lower the value of the Strait of Hormuz. Consider what is going on right now.  Saudi Arabia is maxing out its big East-West pipeline to the Red Sea. The U.A.E. is actively rushing to build a new pipeline that goes around the Strait.  And Chevron is actively investigating the feasibility of reopening a damaged Iraq to Syria pipe that would eliminate the need to move some oil by water. There is now also some talk that Israel could offer up an old pipeline to the Saudis. That pipeline – which was, oddly, built as a joint project with Iran –  could also be connected to a new pipe in Saudi Arabia. It’s not clear what may ultimately materialize, but there is some big talk around big plans.  The bottom line is that by shooting ships, Iran is also blowing up the one big negotiation lever it has: the value of Hormuz itself. 

By shooting ships, Iran is also blowing up the one big negotiation lever it…