In a short follow-up note, Stephen Jen shares additional thoughts on the Iran conflict, the Strait of Hormuz, and the potential implications for global financial markets.
Stephen frames the situation as still fragile, but increasingly tilted toward a more constructive market outcome than previously assumed. While the note is deliberately caveated as a set of “casual and subjective guesses,” it sets out a more sanguine probability assessment than in his previous update.
As Stephen writes:
“Yesterday, I thought the probability of the US taking an early off-ramp (i.e., before April 28 – the two-month mark) was 65%, and a messy scenario was 35%. Now, I feel that the probabilities may be 80:20.”
The note also discusses the potential for tolls on the Strait of Hormuz, arguing that such a system could be economically meaningful while still being manageable relative to the value of cargo passing through the route.
Stephen writes:
“Before the War, there were on average some 50-70 ships exiting the SoH per day. That means the tolls could be more than USD100MM per day or USD36 billion a year.”
From a markets perspective, the note suggests that if the more constructive scenario proves correct, risk assets could rally, bond yields could fall as oil prices stabilise, and the dollar could resume its broader structural decline.
As Stephen concludes:
“If I’m right with my (naively) sanguine view, I see prospects for a powerful rally in risk assets, and for bond yields to fall if oil prices calm down further.”
The note also reiterates Stephen’s constructive view on selected non-dollar currencies, including the euro, yen and renminbi.
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