Key facts
- Shipping transits through the Strait of Hormuz remained largely disrupted.
- Iran and Oman are reportedly nearing a deal to reopen the maritime chokepoint.
- Brent crude futures traded near $85 a barrel.
- Global supply-chain stress is near its highest level since the pandemic.
- UBS's Global Supply Chain Stress Index showed a modest easing in July but remained significantly above pre-conflict levels.
Shipping traffic through the Strait of Hormuz remained significantly disrupted on Monday morning, despite reports that Iran and Oman are nearing an agreement to resolve the maritime chokepoint. Brent crude futures hovered near $85 a barrel as markets anticipated a potential resolution.
However, global supply chain stress is still near its highest point since the COVID-19 pandemic, and a full normalization could take months even if shipping traffic resumes. UBS senior international economist Pierre Lafourcade noted that while the bank's Global Supply Chain Stress Index showed a modest easing in July from its June peak, disruptions stemming from the Hormuz bottleneck continue to strain global shipping networks.
The median reading of UBS's 23-component index fell 0.4 standard deviations from June but remained 0.9 standard deviations above its pre-Iran conflict level. The average reading declined 0.3 standard deviations from June, while still being 1.35 standard deviations above February's pre-conflict levels. Markets have reacted optimistically, reflected in a roughly $20 per barrel drop in Brent crude since its July 23 peak, but stress in supply chains is expected to persist long after any accord is implemented.
The indicator, constructed as the cross-sectional average of z-scored series, shows increasing divergence across components. The measure most directly reflecting the Hormuz bottleneck, seaborne oil and gas flows in the Asia region, has retraced about half of the drop experienced since the Strait closure. Other components reflect the shock more indirectly. While delivery times improved in Asia excluding China, they worsened in the US. Lower air-freight costs provided the greatest relief in July, whereas shipping costs increased again across major reporters.