Why Markets are Shrugging Off the Oil Shock

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This article was authored by: Lance Roberts

The Strait of Hormuz remains effectively closed since February 28. Roughly 20% of the world’s seaborne oil stopped moving through the chokepoint. The International Energy Agency described the event as “the largest supply disruption in the history of the global oil market.” Gulf producers shut in nearly 9 million barrels a day of production. U.S. gasoline at the pump jumped from $2.98 to over $4.00. Every historical template for this kind of shock, 1973, 1979, 1990, pointed to a stagflationary body blow that breaks markets. After 30 years of watching cycles play out, when the tape refuses to confirm a catastrophe narrative, it’s usually seeing something the headlines miss. That’s exactly what is happening with the Strait of Hormuz. Brent peaked near $120 and now sits around $96, well below the $132 the Dallas Fed modeled for a closure lasting three quarters. The S&P 500 is grinding higher. China, which takes roughly a third of its crude through the waterway, hasn’t buckled. The “20% of global oil closed” framing was always misleading. Middle Eastern producers rerouted crude around the strait. 5 to 6 million barrels a day can flow through Saudi and UAE pipelines terminating at the Red Sea and the Gulf of Oman. That’s roughly a third of the region’s normal seaborne exports, redirected within weeks. By late March, Iran had also granted transit rights to tankers flagged by China, Russia, India, Iraq, and Pakistan. Iran’s move to close the Strait of Hormuz served as a rationing mechanism rather than a closure. Secondly, the strategic reserves finally worked as designed. The IEA coordinated a 400-million-barrel release, the largest in its history. The U.S. SPR alone is putting 1.4 million barrels a day on the water. Buying time while pipeline workarounds scaled and demand destruction started to bite. Third, China came into the crisis loaded. EIA data show Chinese commercial oil inventories near 1 billion barrels heading into February 2026, plus another 360 million barrels of state reserve. That’s several months of imports on hand. Beijing was never going to let this break its economy. Finally, and most importantly, the United States has dramatically changed structurally since the 1970s. Domestic crude production exceeds 13 million barrels a day, which insulates the US against foreign shocks, as we saw during the Arab Embargo. Notably, the Dallas Fed’s worst-case scenario for a closure confines the damage to a single quarter, estimating a 2.9-percentage point annualized hit to global real GDP. We’re tracking closer to the base case, which assumed rerouting, reserves, and demand response would absorb most of the damage. So far, they have. The markets already know this. The supply shock has been metabolized, and earnings are now driving the tape. Insight shows 88% of reporting S&P 500 companies have beaten first quarter EPS estimates, well above the 10-year average of 76%. Aggregate earnings are coming in 10.8% above estimates, versus the historical 7.1%. Analysts now project 18% full-year 2026 earnings growth. A caveat: Forward 12-month P/E sits at 20.9, above the 5-year average of 19.9 and the 10-year average of 18.9. At those multiples, a clean beat earns a muted reaction. A guidance cut gets punished hard. The real test isn’t Q1 numbers. It’s Q2 guidance. If retail, travel, and discretionary names start trimming outlooks once the $4+ gasoline hits flows through consumer wallets, forward estimates finally break their uptrend. Until that happens, the path of least resistance is still higher.