The Signal
The Strait of Hormuz will stay closed through June — and smart money is betting on it getting worse before it gets better. Informed traders are putting real money on a 58.5% chance there's no peace deal by end of June, with regime-change bets climbing to 18.5%. That's not a ceasefire bet. That's an escalation bet.
Here's what the headlines miss: Brent just crossed $104.94, up 3.6% at last close, while federal courts struck down Trump's backup tariffs this week. You're facing the worst possible combination — energy costs spiking while your tariff relief remains legally contested.
The 90-day implication is binary. If Hormuz reopens by end of June (41.5% odds), you overpaid for hedges but kept operations running. If it doesn't, the operators who locked in fuel and surcharge clauses in May are the ones with margins intact in August.
This Week's Action Items
☐ INSERT fuel surcharge clauses into contracts this week — customers are receptive while the "ceasefire" narrative holds.
☐ AUDIT tariff exposure and refund eligibility — courts struck down backup tariffs; check if your imports qualify.
☐ LOCK IN 60-day supply of petroleum-based inputs — Beige Book confirms plastics and fertilizers are already repricing.
☐ MODEL two scenarios: Hormuz open by July vs. closed through summer.
☐ HOLD wage increases through June — quits rate at 2.0% signals workers aren't leaving.
What Smart Money Knows
| Strait of Hormuz open by end of June | 41.5% |
| US-Iran peace deal by June 30 | 38.5% |
| Iranian regime falls before 2027 | 18.5% |
| Fed cuts 25 bps at June meeting | 2.1% |
Nearly 6-in-10 traders betting against a peace deal while pricing 18.5% regime-change odds means informed money expects escalation, not resolution. And at 2.1% odds of a June rate cut, the credit cavalry isn't coming — you're facing elevated energy costs with elevated borrowing costs simultaneously.
What History Says
[HIGH CONFIDENCE] Middle East conflict involving oil shipping lanes has spiked oil 15-40% within 30 days in 6 of 7 instances since 1973 — audit energy exposure immediately.
[HIGH CONFIDENCE] PPI rises lead CPI by 2-3 months with 85% correlation — if you haven't passed through March's PPI increase (274.1), you have 30-60 days before margin compression hits.
[HIGH CONFIDENCE] Quits rate below 2.1% leads to wage deceleration within 2-3 months — hold off on preemptive raises.
Business Conditions Scorecard
🟢 CREDIT — HY spread: 2.79%, C&I loans: +$39B — Spreads stable despite geopolitical stress
🟡 LABOR — Quits: 2.0%, claims: 200K — Below wage-pressure threshold
🔴 INPUT COSTS — WTI: $98.76, PPI: 274.1 (March) — Above $90 stress threshold
🔴 DEMAND — Vehicle sales: 16.7M, sentiment: 53.3 (March) — Below 55 recessionary zone
Credit markets are ignoring what consumer sentiment is screaming — historically, sentiment leads spending by 60-90 days. Tighten receivables terms now.
Sector Spotlight - Manufacturing & Supply Chain
"Energy and fuel costs rose sharply in all Districts, leading to higher prices for plastics, fertilizers, and other petroleum-based products." That's the Fed's Beige Book quoting your suppliers. If you haven't repriced petroleum-derived inputs yet, your competitors have.
The tariff situation adds complexity. Courts struck down backup tariffs this week, but legal uncertainty means you can't count on relief lasting. Manufacturers new orders rose to $82.96B in March — demand is holding. The squeeze is on costs, not revenue.
Lock in 60-day inventory of metals and petroleum-based materials now — the Beige Book notes "rising prices for metals due to tariffs, such as steel, copper, and aluminum."
The Geopolitical Threat
Your diesel costs depend on whether the Navy can keep the Strait open through summer. This week's exchange of fire — Iranian attacks on three Navy ships, U.S. sinking six Iranian boats — shows the "ceasefire" exists in name only.
The decision framework is asymmetric. Hedge and Hormuz opens: you overpay 10-15% on fuel. Don't hedge and it stays closed: you're repricing every contract at a loss.
Power & Policy
Fed and Rates: Warsh confirmation is near-certain. More importantly: 96.5% odds the Fed holds rates above 3.50% through June 17. No relief coming — the Fed won't cut while oil spikes above $100. Plan for 6-month elevated borrowing costs minimum.
Decision Window
One decision: get fuel surcharge language into every contract before June 1. Customers are relaxed because headlines say "ceasefire." Informed money says otherwise. The language protects you; invoking it comes later.
Watch next week: Strait of Hormuz end-of-May odds (currently 14.5%). Above 25% signals de-escalation. Below 10% means accelerate all hedging timelines.