The official resumption of the war between the US and Iran appears to have caught markets off guard. Asset prices reacted sharply after the news broke. US President Donald Trump informed Congress that military operations had resumed under the War Powers Act. The law gives him 60 days before he must seek Congressional approval. Trump had already declared the ceasefire “over” on July 7 during the NATO summit in Turkey.
Although officials sent the letter to Congress on Thursday, it only became public on Monday. During that time, US forces intensified attacks on Iran after multiple strikes on commercial shipping. CENTCOM confirmed more than 300 strikes since Saturday, completing a fifth wave of operations early Tuesday.
What’s Really Happening in the Strait
Markets entered the weekend expecting negotiations to resume. When talks failed to materialise, Brent crude climbed to $80 per barrel. However, the biggest market reaction came after the renewed blockade of the Strait of Hormuz.
Iran had previously warned it would target ships travelling outside its territorial waters, leaving half of the Strait open. The renewed US blockade effectively closed the remaining route. Brent crude quickly surged above $85 per barrel.
Trump also announced on social media that the US would charge a 20% transit fee to cover “protection” costs. He did not explain how the policy would work. Many analysts believe the fee is too expensive for shipping companies to accept. Others argue the proposal aims to reassure Trump’s allies in Congress about the cost of the conflict rather than introduce a practical policy.
Where Are Markets Headed?
The closure of the Strait remains the biggest concern for financial markets, even more than the military conflict itself. Unlike the situation in March, businesses have now had several months to adapt. Companies rerouted shipments, imported more natural gas from Russia, and diversified supply chains. China also reduced energy demand faster than expected. However, inventories still need replenishing.
Because markets have adjusted, oil prices are less likely to revisit the extreme highs seen earlier this year. Speculators drove much of the March rally, while most energy consumers continued to rely on long-term supply contracts. The global economy has since shown it can absorb higher energy costs. That reduces speculation about oil reaching $200 per barrel.
Forex Moves Beyond Crude
Oil prices will likely remain above pre-war levels. Higher WTI prices could increase US inflation and strengthen expectations for a Federal Reserve rate hike, possibly as early as July. That scenario would likely keep the US dollar attractive as a safe-haven currency, supporting further gains against the euro and the pound.
Gold fell immediately after news of the renewed conflict, suggesting precious metals may remain under pressure in the weeks ahead. Investors will also watch developments in China closely. As the world’s largest commodity importer, China’s demand will influence oil, metals, the Japanese yen, and commodity-linked currencies such as the Australian dollar.
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