Strait of Hormuz traffic returns to normal by December 31?
The market is still far from the threshold that matters for resolution: IMF-style ship-call traffic remains only a small fraction of normal, while the Yes condition requires a sustained 7-day average of at least 60 arrivals. Despite a strong recovery in oil flows, the vessel-count data still points to No as the more likely outcome by year-end.
Analysis
The key issue is that this market resolves on ship-count traffic, not on cargo throughput or oil volume. The latest reporting indicates that AIS-visible commercial traffic through the Strait of Hormuz is still only about 5% to 6% of pre-crisis levels, with roughly 4.0 to 5.3 ships per day versus a pre-crisis baseline near 84.8 per day. That is an enormous gap relative to the required threshold of a 7-day moving average of 60 or more, which would imply traffic recovering to around 70% of normal ship counts. The current data therefore shows a corridor that is operating with much lower vessel frequency than the resolution condition requires.
The strongest argument for Yes is that the economic function of the strait has already rebounded more than vessel counts suggest. Oil and petroleum product flows are reported to be around 77% to 80% of prewar levels, and some broader crude-flow measures are even closer to normal. That means the strait is not physically unusable, and a rapid jump in ship counts is not impossible if commercial confidence improves, security conditions stabilize, and routing constraints ease. In principle, once insurers, operators, and regional actors feel the risk premium has fallen enough, traffic could normalize faster than recent vessel-count readings imply.
Against that, the market still faces a steep structural hurdle. The remaining gap from roughly 5 ships per day to 60 ships per day is not a marginal recovery but a more than tenfold increase in the daily vessel count. Historical patterns in maritime disruption suggest that even when cargo volumes recover, ship counts can stay depressed for long periods because larger vessels, transshipment choices, convoying, scheduling changes, and risk management reduce the number of reported transits. The latest news also emphasizes that the strait is still viewed as far from normal, with security precautions, insurance costs, and military protection measures still influencing behavior. Those frictions make a near-complete normalization by December 31 possible only if conditions improve abruptly and broadly.
Market pricing around 20% for Yes already reflects some chance of a late-year normalization, and that seems directionally reasonable because the market is not asking for a permanent recovery, only one qualifying 7-day average before year-end. Still, given the current vessel-count shortfall and the limited time remaining, I think the true probability is below the market price. The most plausible outcome is continued partial recovery in cargo flows without a sufficient jump in reported ship calls to clear the 60-arrival threshold.
Arguments
For
- Arguments for Yes: The strait is already handling much more cargo than before, showing that a broader operational recovery is possible.
- Arguments for Yes: If security conditions improve sharply, vessel counts could rise quickly from a very depressed base.
Against
- Arguments against Yes: The current ship-count baseline is only around 4 to 5 arrivals per day, far below the 60 required for resolution.
- Arguments against Yes: The remaining gap is so large that normalizing by December 31 would require an unusually fast and sustained turnaround.
Key drivers
- The resolution depends on ship-call counts, and current counts are still far below the 60-arrival threshold.
- Cargo and oil flows have recovered faster than vessel traffic, but that does not satisfy the market condition.
- Security risk, insurance costs, and operational caution continue to suppress normal commercial scheduling.
- A late-year normalization would require a very large and sustained jump in daily transits.
Risk factors
- A sudden geopolitical easing could trigger a rapid rebound in vessel calls.
- Reporting could capture a temporary surge that briefly pushes the 7-day average above 60.
- The market may be underestimating how quickly shipping behavior can normalize once risk premiums fall.
- Changes in routing or classification could make the measured arrival count rise faster than expected.
Scenarios
Best case
Regional tensions ease materially, insurers and ship operators regain confidence, and daily transit calls accelerate enough to lift the 7-day average to 60 or more before year-end.
Most likely
Oil and cargo flows continue improving, but vessel counts remain well below normal, leaving the 7-day average short of 60 through December 31.
Worst case
Traffic stays structurally depressed near current levels, with only modest improvement in vessel counts and no 7-day average ever approaching the resolution threshold.
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