Strait of Hormuz traffic returns to normal by December 31?
I think Yes is slightly more likely than not, but not as likely as the current market price suggests. The threshold is modest relative to pre-war traffic, yet the latest week has been marked by renewed attacks and traffic that still looks well below normal.
Analysis
The latest seven days have been negative for the reopening thesis. Reuters and S&P reporting show renewed attacks on vessels near the Strait of Hormuz, a jump in shipping risk to severe, and daily traffic that is still materially below pre-conflict levels; one Reuters update says activity on July 9 was at a near standstill, while another says traffic on July 10 had slowed again after hostilities resumed. S&P also reported 48 transits on July 8 versus 47 on July 7, which is still far below the pre-conflict average of 125 to 140 daily sailings and below the market’s 60-ship threshold.
At the same time, the target is not full normalization, only a 7-day moving average at or above 60, and that is meaningfully lower than the historical baseline. The official IMO page confirms the strait’s transit series is tracked as average daily transits, and recent June and early July data in market coverage show that volumes can rebound quickly when conditions improve, including stranded tankers moving through after the ceasefire and temporary easing in late June. That means the threshold is reachable if the security environment stabilizes for even a few weeks.
My main reason for staying below the market price is that the rebound still looks fragile. Reuters and S&P both describe the reopening story as vulnerable, with shipowners turning back, some vessels going dark, and analysts warning that normalization may extend into 2027 if tensions do not ease further. With only about five and a half months left, there is enough time for a recovery, but the most recent news flow argues for caution rather than confidence.
Arguments
For
- Arguments for Yes: The 60-ship threshold is well below the pre-conflict level, so the market does not need a full return to normal for this contract to resolve Yes.
- Arguments for Yes: Earlier easing showed that traffic can recover quickly when the ceasefire holds and backlog-clearing resumes.
- Arguments for Yes: There are still many months left in the year, so even a late-summer or autumn stabilization could produce at least one qualifying 7-day average.
Against
- Arguments against Yes: The latest news shows renewed attacks and a near-standstill in tanker traffic, which is the opposite of the sustained calm needed to push the average above 60.
- Arguments against Yes: S&P and Reuters both indicate traffic remains far below pre-conflict norms, suggesting the recovery is still incomplete and unstable.
- Arguments against Yes: Shipping insurers, operators, and governments may stay cautious after the recent violence, limiting the speed of any rebound.
Key drivers
- Whether the current ceasefire and diplomatic talks hold long enough for a sustained rebound in vessel crossings.
- Whether shipping risk premiums, crew safety concerns, and tanker turn-backs fade rather than persist.
- Whether a backlog of delayed or diverted voyages clears fast enough to lift the 7-day average above 60.
- Whether the latest low-traffic readings around the mid-40s or lower represent a temporary dip or a longer-lasting plateau.
Risk factors
- A new round of attacks or retaliatory strikes could keep shipowners away from the strait for weeks.
- If operators continue to go dark or reroute, PortWatch-style counts may stay suppressed even without a full closure.
- Political negotiations could stall, leaving the reopening story fragile well into the autumn.
- The market could run out of time if traffic remains in the 30 to 50 range instead of breaking cleanly above 60.
Scenarios
Best case
The ceasefire stabilizes, attacks stop, insurance and security conditions improve, and backlogged traffic plus normal commercial sailings push the 7-day average above 60 sometime in late summer or autumn.
Most likely
Traffic remains volatile and below normal for much of the summer, then partially recovers at times but spends most of the period under the 60 threshold, leaving the contract close but not guaranteed.
Worst case
Fresh strikes or renewed threats keep traffic depressed, ships continue to turn back, and the 7-day average never reaches 60 before year-end.
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