Strait of Hormuz Shipping Recovery Remains Slow as Geopolitical Risks Persist

Following the signing of the U.S.-Iran memorandum of understanding, the recovery of shipping traffic through the Strait of Hormuz has progressed more slowly than expected. According to data from a UK-based maritime monitoring agency, the United States has escorted only 70 vessels through the strait over the past three days, with transit volumes remaining well below pre-conflict levels.

Industry sources noted that war-related insurance premiums have declined from peak levels of 5%-10% to around 2%, but they remain significantly higher than the typical 0.1% seen during normal years. Iran has recently signaled that it intends to impose new requirements governing passage through the strait and may introduce related transit fees. Such measures conflict with the long-standing view within the international shipping industry that major international waterways should remain open and free from additional restrictions.

Meanwhile, reports suggest that Oman may be helping establish a framework for collecting Strait-related service charges on Iran's behalf. As a result, uncertainty surrounding future shipping regulations remains a key concern for global markets.

At the same time, Israel announced plans to maintain military deployments in three security zones across Lebanon, Gaza, and Syria for an indefinite period. Israeli Defense Minister officials stated that Israeli forces would retain operational freedom within these designated security areas.

Israeli Prime Minister Benjamin Netanyahu is expected to meet with Donald Trump in Washington, placing renewed focus on developments in the Middle East. Although a trilateral ceasefire framework has reportedly been reached, Israeli airstrikes continue across multiple areas in Lebanon, raising questions about the effectiveness and durability of the agreement.

Trump also stated that resolving the Russia-Ukraine conflict could happen "much faster than people think." He described Russian President Vladimir Putin as having a "very strong desire" to end the conflict, while Ukrainian President Volodymyr Zelenskyy is likewise seeking a resolution and plans to discuss the matter during the upcoming NATO summit. These comments have contributed to expectations of a temporary easing in geopolitical tensions.

On the economic front, the U.S. ISM Services PMI declined to 54.0 in June from 54.5 in May, marking its 24th consecutive month in expansion territory. While the pace of growth moderated, the employment index posted its strongest increase since 2024 and returned to expansionary levels. Meanwhile, the prices paid index fell to a four-month low, suggesting that resilient demand and easing cost pressures are coexisting within the economy.

Within the Federal Reserve, differing views have emerged regarding the role of forward guidance. Governor Kevin Warsh argued that forward guidance has largely outlived its usefulness and that policy decisions should be based entirely on incoming economic data. In contrast, Governor Christopher Waller maintained that forward guidance remains a valuable policy tool, provided it is applied with sufficient flexibility. Waller acknowledged that guidance issued during 2020-2021 ultimately constrained policy responses as inflation accelerated more rapidly than anticipated.

With signs of stabilization emerging in the labor market, the Federal Reserve's policy focus is increasingly shifting back toward inflation dynamics.

Market Implications

The slow recovery of shipping activity through the Strait of Hormuz, combined with Israel's decision to maintain an indefinite military presence in regional security zones, highlights the significant challenges that remain in implementing the U.S.-Iran agreement.

Elevated insurance costs and ongoing disagreements over maritime regulations are likely to continue affecting global energy supply stability and transportation expenses. While Trump's optimistic remarks regarding the Russia-Ukraine conflict have offered some short-term relief for geopolitical sentiment, meaningful progress remains uncertain.

Recent U.S. economic data point to a landscape characterized by moderating growth but continued resilience. Meanwhile, the debate within the Federal Reserve underscores the challenge of balancing policy flexibility with forward guidance in an increasingly data-dependent policy framework.

In the near term, energy price volatility and geopolitical developments are expected to remain the primary drivers of market risk sentiment. Over the medium to long term, lasting stability in the Middle East will likely depend on the normalization of Strait of Hormuz shipping operations, meaningful progress in Israeli military withdrawals, and substantive breakthroughs in nuclear negotiations.