LARRY KUDLOW: Trump must make it clear that America owns the entire Arabian Gulf and the Strait

The article says only 2 commercial ships have passed through the Strait of Hormuz under Project Freedom, while roughly 1,550 vessels remain queued at the top of the Arabian Gulf, contributing to higher oil and gasoline prices. It argues that expanded Navy protection could eventually move 30, 50, then 100 ships through and ease energy-price pressure. The piece also highlights ongoing U.S.-Iran tensions, a ceasefire risk, and sanctions/embargo measures aimed at restricting Iran's oil revenue.

Analysis

The market is underpricing the sequencing risk here: the immediate winner is not just crude, but the entire corridor of shipping insurance, tanker availability, and working capital tied up in inventory at sea. Even a partial reopening creates a sharp bifurcation between cargoes already trapped in the Gulf and those that can be rerouted; that should steepen the forward curve in prompt barrels while leaving deferred prices comparatively anchored unless the passage rate ramps quickly. The more important second-order effect is volatility compression for non-Middle East supply chains: refiners, airlines, and chemicals can only reprice once they believe throughput is durable, so a few days of successful transit is not enough to de-risk margins.

The biggest loser if traffic normalizes is the scarcity premium embedded in crude, product cracks, and tanker rates; if passage rises from a token flow to even a few dozen vessels per day, the market can unwind a meaningful portion of the geopolitical risk premium within 1-3 weeks. But this is a binary policy regime, not a linear one: any renewed strikes or perceived breach of the ceasefire would force a rapid re-risking, with front-month Brent and diesel reacting first, then equities with high fuel beta. The asymmetry matters because the downside from a credible opening is gradual, while the upside from a failed opening is immediate and violent.

Consensus seems too focused on headline oil direction and not enough on the timing gap between physical relief and financial repricing. Even if transit improves, inventories in OECD and floating storage won’t normalize overnight, so product markets may stay tighter than crude for several weeks; that favors refiners over pure upstream in the near term, provided crude doesn’t spike again. Conversely, transport and consumer-discretionary names still have room to recover if the passage becomes self-sustaining, because their earnings sensitivity to fuel costs is higher than investors usually model.

The contrarian risk is that the market treats any successful shipping flow as a durable de-escalation when it may just be a tactical window. If the corridor remains militarized, insurers and charterers will demand a persistent risk premium, so freight and tanker economics could stay elevated even as oil prices ease. That creates a tradeable divergence: crude may fall faster than tanker equities, especially if vessel throughput improves only modestly rather than fully normalizing.

Key Decisions for Investors

• Short front-month Brent or buy puts on USO for a 2-4 week horizon if vessel throughput meaningfully expands; target a fast decay of the geopolitically inflated prompt premium, with tight risk if headlines re-escalate.
• Pair trade long refiners (VLO, MPC) / short E&Ps (XOM, CVX) for 1-2 months if transit improves but supply remains regionally constrained; refiners benefit from easing feedstock panic while upstream loses the scarcity bid.
• Buy tanker exposure on weakness (DHT, FRO) as a medium-horizon trade: even partial militarized reopening can keep charter rates elevated because insurers and operators will price in corridor risk for longer than crude traders do.
• Reduce exposure to airline and transport beta names only after confirming sustained passage for several sessions; if shipping normalizes, JETS and XLI have 5-10% upside from lower fuel-input pressure, but they are the first to get hit if the corridor closes again.
• Use call spreads on XLE instead of outright longs if maintaining energy exposure; the upside from a failed opening is large, but the asymmetry favors defined-risk participation because prompt crude can reverse sharply on any verified transit improvement.