Global shipping and energy trading are once again unsettled following the collapse of the Islamabad truce. Vessel traffic remains well below pre-conflict levels.
The Islamabad MoU between the United States and Iran, and the truce extension that followed, has largely unravelled. Initially it saw the reopening of the Strait of Hormuz and looked to be creating the conditions for broader negotiations, both sides have repeatedly accused each other of violating its terms, military strikes have resumed, and mediators are now attempting to negotiate a new ceasefire.
What does this mean for trade?
The resulting resumption of hostilities in the Strait has kept shipping activity subdued, with most major operators waiting for coordinated guidance from governments, insurers, and other stakeholders.
- According to Clarksons Research, traffic through the Strait had fallen to around 90% below pre-conflict levels, averaging just 12 crossings per day over the five days leading up to 20 July.
- Making matters worse, according to London-based Lloyd’s List Intelligence, ship transits through the Strait fell by 52.4% between 20–27 July, reaching their lowest levels since March.
The Houthis in Yemen extended the disruption of Middle Eastern energy exports on July 20th by targeting critical Saudi oil infrastructure and threatening to effectively blocking the Bab el-Mandeb Strait.
- As a result, vessel transits through the Bab el-Mandeb Strait have remained more than 50% below pre-Houthi attack levels.
According to Suaid Global, disruptions in the middle east have already led to a significant reshape of global shipping.
- Cape of Good Hope diversions adding 10–14 days to transit times, absorbing 5–7% of global container capacity (1.3–1.8 million TEU).
- Asia–Europe freight rates remain 25–40% above pre-crisis levels, increasing Asia–US East Coast costs and transit times, and driving higher insurance premiums and war-risk surcharges that are expected to persist through at least 2027.
Context in Numbers
A prolonged disruption in the Strait of Hormuz could sustain elevated inflation and weaker global growth through late 2026 or early 2027, as reduced oil and LNG flows drive higher energy prices across the economy while also disrupting critical jet fuel, helium, and fertilizer supply chains, increasing costs for transport, industry, and agriculture worldwide.
- 10% energy price increase leads to +0.4 pp global inflation and −0.1–0.2 pp GDP growth.
- Before the war, the Strait of Hormuz handled ~35% of seaborne oil and ~20% of global LNG trade.
- 1% drop in oil supply can increase real oil prices by ~4%.
- ~33% of global helium and fertilizer trade passed through Hormuz.