Fifty-three years ago, the men running ARAMCO's terminal at Ras Tanura watched the same scene play out. Tankers that had been loading crude for Japan, Europe, and the United States sat idle in the shallows of the Persian Gulf.

The pipes had stopped. By the time the embargo officially ended five months later, the S&P 500 had fallen 43%, the U.S. economy had contracted, and a generation of investors who had never thought seriously about energy learned the hard way that oil is not a commodity, it is essentially the circulatory system of modern civilization.

Now snap forward to today. On February 28, the United States and Israel launched Operation Epic Fury, a coordinated strike campaign targeting Iran's nuclear infrastructure, military command, and energy facilities. Then by March 1, Iran's new Supreme Leader Mojtaba Khamenei, the son of Ayatollah Ali Khamenei who was killed in the opening strikes, had declared the Strait of Hormuz closed.

The declaration was acted upon as Iranian forces began mining the waterway and attacking tankers. By March 10, the International Energy Agency estimated that at least 10 million barrels per day of production across Gulf states had been curtailed, per the IEA's March 2026 Oil Market Report.

The last time the world faced anything close to this was the Arab embargo of 1973. The last time Brent crude briefly touched $119 a barrel was during Russia's invasion of Ukraine in 2022, and that was a short spike. This one looks like it has legs.

The S&P 500 closed Friday at 6,632, down 1.6% for the week and posting its third consecutive weekly loss. This marks its longest losing streak in roughly a year. The index sits 5% below its recent high. The Nasdaq fell 1.3% for the week.

Treasury yields, which theoretically fall during a flight to safety, are instead climbing.

The 10-year closed Friday at 4.29%, up from 3.93% at the intra-period low, because bond investors are pricing in a coming inflation shock rather than a coming recession rescue. Gold, at $5,062 per ounce, is telling the same story but in the language of hard assets. Every significant geopolitical and monetary shock of the past decade has pushed gold higher. This time, it has not paused.

Force 1: The Strait of Hormuz and the Oil Supply Shock

The numbers here are almost cartoonishly large. About 20 million barrels per day of crude and petroleum products normally transit the Strait of Hormuz. That is roughly 20% of global supply, per the IEA. That flow has been reduced to a trickle.

To put a number on the gap, IEA member nations agreed on March 11 to release 400 million barrels of emergency reserves. This is the largest coordinated reserve release in the IEA's 50-year history and the market shrugged. Brent still closed above $103 on Friday.

Tom Liles, upstream research head at Rystad Energy, put it plainly saying that the 400 million barrels covers roughly 40 days of the lost supply, but it cannot all hit the market simultaneously. The U.S. is releasing 172 million barrels of its Strategic Petroleum Reserve over 120 days, which implies 1.4 million barrels per day against a daily shortfall of at least 9 million barrels that can only route through Hormuz.

ING's commodity strategists were characteristically blunt:

"The only way to see oil prices trade lower on a sustained basis is by getting oil flowing through the Strait of Hormuz."

Amjad Bseisu, CEO of EnQuest, told CNBC that the oil market has:

"Never seen something of this magnitude before"

Force 2: The Stagflation Setup

The February CPI report, released March 11, came in at 2.4% year-over-year, which was exactly in line with expectations, per the Bureau of Labor Statistics. Core CPI held at 2.5% annually.

These numbers were widely viewed as the calm before the storm.

The data covers February, before a barrel of Brent had crossed $100. March's CPI, which will be released in mid-April, will be the first to capture the oil shock. Goldman Sachs and Carson Group's chief macro strategist Sonu Varghese have both noted that if oil stays above $100, headline CPI could reach 3.5% by year-end. That would be a crushing 110-basis-point acceleration from today's reading. Not to mention that all of this would occur simultaneously with a labor market that is already deteriorating.

The February jobs report, released March 6, was a blowup and that is putting it as nicely as I can. The U.S. economy shed 92,000 jobs in February, far worse than the modest gains analysts had projected. The unemployment rate ticked to 4.4%.Trend job growth has slowed to approximately 11,000 per month, well below the 70,000 threshold needed to hold unemployment steady.

The classic stagflation diagnostic, with rising prices plus falling output plus rising unemployment, is no longer theoretical. We are living the first two legs of it right now. The third leg, which would be GDP contraction, is the open question.

Force 3: The Federal Reserve's Paralysis

The Fed is in one of the worst positions imaginable. Currently watching inflation re-accelerate with no clean policy response. Cutting rates to cushion the economic slowdown risks pouring gasoline on the inflation fire. Holding rates or hiking risks tipping a weakening economy into contraction.

Mohamed El-Erian, Allianz's chief economic advisor, laid this out directly in a CNBC interview on March 3:

"The more it spreads, the more stagflationary it is for the global economy."

He specifically cited what he called the Fed's "limited" policy flexibility, noting that inflation has remained above the 2% target for five consecutive years.

Former Treasury Secretary Janet Yellen echoed this at an S&P Global conference the same week, saying persistent inflation made aggressive rate cuts:

"Unlikely regardless of what might happen in the Middle East."

The CME FedWatch tool currently assigns a 99.3% probability to the Fed holding rates at its March meeting. The funds rate sits at 3.5–3.75%. Traders have pushed the first expected cut to September at the earliest.

Force 4: The Market Regime Shift - Defense, Energy, Gold vs. Tech

The sector rotation underway is not subtle. In the week following the initial strikes, Lockheed Martin gained 6%, Northrop Grumman 5%, and drone maker AeroVironment jumped more than 10%.

Energy stocks also predictably surged.

Exxon Mobil gained 4%, ConocoPhillips 5%. Gold miners are quietly printing money and GDX has been a standout.

On the other side, Adobe collapsed 8% on a CEO departure and guidance miss.

Meta, Palantir, and Oracle each fell between 2% and 4%. United Airlines dropped 6% in a single day as Middle East route cancellations mounted. American and Delta each fell 5%.

This is not random or unique given the backdrop. It is a regime shift.

In stagflationary environments - like the ones that can be studied in 1973, 1979, 2022 - the playbook is consistent in the fact that energy, defense, gold, and commodity producers outperform.

Long-duration growth stocks, which depend on a benign Fed and a strong consumer, underperform.

In the current environment, software stocks with no physical product and 80% gross margins are extraordinarily sensitive to the discount rate. The market is repricing this now, in real time. The iShares software ETF (IGV) bounced off its February lows, but analysts at the time noted it looked more like short-covering than a durable rotation back into growth.

Force 5: The Global Ripple to Europe, Asia, and EM Under Pressure

The war's economic gravity extends well beyond U.S. borders. Europe's dependence on Middle East energy, particularly for diesel and LNG, means this shock hits harder there than in the U.S., which has domestic production as a partial buffer.

The DAX fell 0.6% on Friday, closing at 23,447. The FTSE 100 at 10,261 and the CAC 40 at 7,912 told similar stories.

Oxford Economics ran a simulation. $140 Brent for eight weeks implies a 0.7% negative spillover to global GDP by year-end, with mild contractions in the Eurozone, UK, and Japan.

Even in the more benign $100 scenario, global GDP takes a few tenths of a percentage point hit.

Asia has been hit extremely hard. The Nikkei 225 fell 1.16% Friday to 53,820. Japan imports nearly all of its oil and gets a disproportionate share from the Persian Gulf. The Hang Seng declined 0.98% to 25,466.

China and India, the world's largest importers of Middle Eastern crude, face higher costs on goods they cannot easily substitute. South Korea has announced price caps on fuel for the first time in nearly 30 years.

The dollar, with the DXY at 100.36, has held relatively firm, offering some insulation for U.S. investors holding international positions denominated in weaker currencies.

Mohamed El-Erian has been the most consistent voice on the stagflation risk. In his March 3 CNBC appearance, he described the Iran conflict as:

"yet another shock to a global economy that has so far proven extremely resilient"

This came with an implied warning that resilience has limits. His specific concern is the Fed's trapped position. The central bank cannot cut rates aggressively without risking a reacceleration of already-elevated inflation, and it cannot hike without crushing a labor market already showing 92,000 job losses in February. He described the cumulative effect as "a fresh potential bout of stagflation blowing through the global economy."

Jim Reid at Deutsche Bank took the most alarming tone among the institutional desks, writing in a client note this week that:

"with each passing day it gets harder to argue that the disruption to shipping and energy infrastructure will only prove temporary."

His historical reference point was Russia's 2022 invasion of Ukraine, when oil above $120 coincided with the worst bond-equity correlation since the 1970s.

The more optimistic case rests on a quick resolution. The problem with this view is that Iran's new Supreme Leader has vowed to keep the Strait closed, tanker attacks continued through Friday, and the U.S. Navy has not yet begun escorting ships through the waterway. Energy Secretary Chris Wright said on Thursday that the U.S. was "not ready" to provide escorts but that such operations could begin by end of month.

I put some weight on the resolution scenario. But not 99-cent-of-a-dollar weight. The probability distribution of outcomes here contains many more scenarios where the Strait stays closed longer than the consensus assumes.

What I Own and Why

I have been running an overweight in energy (XLE, CVX, COP), defense (ITA, LMT, NOC), and gold miners (GDX, WPM) since late 2025, when these themes first showed up in my macro work. Those positions are working.

But with this being the case, I am not chasing too high at current prices.

XLE has moved significantly and some of the reward is now in the price. But I am also not selling. The structural case for energy in a world where the Strait of Hormuz has proven it can close has not gotten weaker; it has gotten stronger. Cheap and reliable energy is a national security asset, and markets are only beginning to price that regime change.

In fixed income, I am holding shorter duration (2-year Treasuries, TIPS) over long duration. The 10-year at 4.29% does not adequately compensate for an inflation scenario where Brent runs to $120 for four months and CPI reaccelerates to 3.5%. I would not be adding duration here.

Cash is earning a real return for the first time in years, and in an environment where I genuinely do not know where oil is in six weeks, optionality has value.

In terms of international exposure, I trimmed my European exposure slightly this week.

The Europe thesis, valuation discount to the U.S., fiscal stimulus, ECB rate normalization, remains intact for the long run, but European energy dependence makes the near-term economic drag more acute.

I will add back at more attractive levels if the war resolution comes through. I maintain positions in Indian equities (INDA) and select Asian markets that have domestic energy buffers.

What Changes the Thesis

Three things would cause me to rotate back toward growth and international risk:

(1) A credible, verified ceasefire with tanker traffic resuming through the Strait of Hormuz

(2) A February jobs revision showing less damage than the initial -92,000 print, combined with a March jobs report above 100,000.

(3) Brent crude falling back below $80 on its own, suggesting demand destruction is already absorbing the supply shock.

None of these conditions exist as of this writing. I am watching the weekly U.S. EIA petroleum status report for evidence that strategic reserve releases are actually reaching the physical market. If they do, the oil VIX (currently above 100) should begin to fall, and with it some of the inflation fear premium that has pushed 10-year yields above 4.25%.

What to Watch — Next 10 Days

The single most important variable in every market is the status of tanker traffic through the Strait of Hormuz. Every other data point including CPI, payrolls, Fed language etc. is downstream of that. Here are the specific things I am watching:

U.S. Navy escort operations

Energy Secretary Wright indicated escorts could begin by end of March. If the Navy announces even a partial escort corridor, oil will move sharply lower and growth stocks will bounce hard. Do not chase the move, the structural thesis does not change overnight with one announcement.

Weekly EIA petroleum status report (Wednesday, March 18)

Watch crude inventories. If the SPR releases are arriving at refineries and building commercial inventory, it signals the logistics pipeline is working despite the Hormuz closure. A draw on commercial inventories despite the reserve release would be a red flag for oil prices.

Fed Message

Jerome Powell speaks Thursday March 19 at the Economic Club of Chicago. Given that the February CPI was the last clean data point before the war, the market wants to hear whether the Fed views the energy shock as temporary or as changing the rate path. His words will move the 10-year yield, and therefore the entire risk-asset complex.

Iran ceasefire negotiations

Trump has floated the idea of talks. If any serious diplomatic channel opens, futures markets will react before the press release is issued. Watch oil VIX above 100 as the tell, a sustained drop below 80 suggests traders believe resolution is genuinely close.

March consumer sentiment final reading

The preliminary UMich survey for March came in at 55.5 on March 14, down from February, with the one-year inflation expectation unchanged at 3.4%. The final reading comes in late March. If inflation expectations rise materially, it changes the narrative about whether this shock is being treated as temporary.

There is a story about a Wall Street strategist in October 1973 who told clients the Arab oil embargo would be over in two weeks. He had excellent sources. He understood the political dynamics. He was almost certainly right that no one wanted a prolonged embargo. He was six months too early, and six months was long enough to bankrupt several of his clients who held levered positions in growth stocks.

The lesson is not that we should panic. It is that the resolution of geopolitical crises almost always takes longer than the consensus expects at the start, and almost always ends before the consensus despairs at the end. The 1973 oil embargo lasted from October through March. Russia's invasion of Ukraine produced a commodity spike that lasted roughly nine months before fading. History does not predict the exact duration, but it does suggest that the 'it ends in two weeks' default assumption is the wrong prior.

What it means for portfolios?

Position for persistence, not for resolution. Energy, defense, gold, short duration, inflation protection. These are not tactical one-month trades. They are structural positions appropriate for a world where the Strait of Hormuz is now a demonstrated geopolitical lever and energy security has returned to the front of every government's agenda. I have held them for months. I plan to hold them until the macro environment tells me otherwise.

If and when the Strait reopens and oil falls back to $75, I will have another decision to make. That decision does not need to be made today.

The S&P 500 at 6,632 is 5% off its high. The 1973 parallel that equity strategists are invoking, with a 40%+ decline, would require a genuine recession, not just a slowdown.

I think recession is a tail risk here, not a central case.

A 10–15% correction from the recent high is a reasonable base case if the conflict persists for 60–90 days. That is uncomfortable to say, but the data supports it.

I am not positioning for the 1973 scenario. I am positioning for a world where oil stays above $90 for longer than anyone wants, where the Fed stays on hold longer than markets want, and where the companies with pricing power and tangible assets continue to outperform the ones priced for perfection in a zero-friction world that may not be coming back anytime soon.

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The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.