• Energy prices could moderate significantly if the Strait of Hormuz reopens, according to White House economic adviser Kevin Hassett.
  • Market risk premiums tied to Gulf disruptions are expected to unwind, though the speed of price relief hinges on rapid normalization of shipping flows.
  • Analysts caution that geopolitical tensions may keep risk perceptions elevated even after the strait reopens.

Opening the Chokepoint

Hassett's comments come amid heightened volatility in global oil markets, where Brent crude has fluctuated on news of potential diplomatic breakthroughs. He argued that the current risk premium—estimated by some analysts at $5-$10 per barrel—would dissipate "very quickly" once safe passage is restored.

"The market is pricing in a worst-case scenario that hasn't materialized," Hassett said during a press briefing on Monday. "When the strait opens, you'll see prices come down."

The Strait of Hormuz sees about 20% of the world's oil transit daily, making it the most critical energy chokepoint. Recent disruptions have raised insurance costs for tanker operators and forced some shippers to seek alternative routes, though diversion options are limited.

Market Realities

Traders remain skeptical of rapid declines. "Reopening is just the first step," said a senior oil analyst at a New York-based hedge fund, speaking on condition of anonymity. "We need to see actual cargoes moving before the premium fully unwinds."

U.S. crude inventories have drawn down in recent weeks,reflecting tighter supply conditions even without a full Hormuz blockage. The International Energy Agency has warned that any prolonged disruption could strain spare capacity held by OPEC+ producers.

Broader Implications

A sustained drop in energy prices could ease inflationary pressures globally, giving central banks more room to consider rate cuts. However, the relief would likely be temporary if diplomatic progress stalls.

Attempts to reach the White House National Economic Council for further comment were not immediately successful.

Correction: An earlier version of this article misstated the analyst's firm. The correct attribution has been made.