Hormuz Watch: Week 13

The Setup

This is Week 13 of Hormuz Watch, a weekly series tracking six indicators. The original thesis: The Hormuz Crisis Nobody Is Watching. Last week: Week 12 (the inflation lock-in).

The Dashboard

1. Tanker Transits

Threshold: recovery above 30 to 40 per day. Week 12: ~11 (selective, under Iranian control). Week 13: IMF PortWatch recorded 4 transits on May 24. Polymarket prices Hormuz traffic returning to normal by end of May at near zero. Iran accused the US of ceasefire violations after American strikes near the strait on May 26. The IRGC said several ships attempted unauthorized entry into the Gulf and warned it would "respond strongly to any disruption." The US said it destroyed several attack drones near the strait on Thursday. Kuwait intercepted a missile. Approximately 1,550 ships remain stranded and an estimated 22,500 mariners are still trapped. Verdict: worse. Down from 11 to 4. The lowest reading since early March.

2. Brent Crude

Threshold: sustained moves above $120. Week 12: $105 to $113. Week 13: ~$95, down roughly 13% over the past month. Hit $97.51 this morning before bouncing to $95 on renewed hostilities. Brent is now on track for a second consecutive weekly decline as markets price in the tentative deal framework. US crude inventories fell for the fourth straight week. The 52-week range is $58.72 to $126.41. The deal-hope pattern: $116 to $100 (Week 10), $109 to $95 (Weeks 12 to 13). Each dip is starting from a lower base, but each bounce is also lower. Verdict: declining on deal hopes, but volatile. A $5+ snapback today on the IRGC drone incident shows how fragile the pricing is.

3. Brent-WTI Spread

Threshold: widening beyond $15. Week 12: ~$3 to $5. Week 13: ~$5 to $6 (Brent ~$95, WTI ~$89 to $90). Slightly wider than last week but well within the range of the past month. Not signaling acute dislocation. Verdict: stable.

4. Urea (Fertilizer)

Threshold: $750 to $800 per ton signals unavoidable food price impact. Wholesale benchmarks remain in the $560 to $625 range. Locked in. The planting-season damage is done. The next data point that matters is the September harvest. Verdict: locked in. No change.

5. Gas Price

Threshold: $5.00 national average (2022 peak: $5.01). Week 12: $4.56. Week 13: $4.43 (AAA, May 28). The first meaningful weekly decline since the crisis began, tracking the drop in Brent from $109 to $95. Still up 56% from the pre-war $2.84 and $1.24 higher than a year ago. California remains above $6.00. Verdict: pulled back. If the deal holds, this number has further to fall. If it collapses, $5.00 is back in play by mid-June.

6. The Fed

Threshold: signals it cannot cut or considers hiking. Warsh was sworn in as chair on May 22 at the White House, the first Fed chair swearing-in held there since Greenspan in 1987. His first FOMC meeting is June 17 to 18. New data this week: the April producer price index surged to 6.0% year over year, its highest since December 2022. PPI measures what producers are paying before costs reach consumers, which means the inflation pipeline identified in Week 12 has another stage loading behind it. CME FedWatch now prices 40% odds of a rate hike by December, up from near zero at the start of the year. EY-Parthenon's chief economist says the FOMC could acknowledge at the June meeting that it "may have to hike rates if inflation remains above target." Verdict: worsening. PPI at 6% confirms the inflation pipeline has another stage that has not yet reached consumers.

The Deal That Might Be Real

In Week 10, we called it "the phantom deal": a one-page memo that Iran was "reviewing," which erased $16 from Brent before anyone had signed anything. Week 13 is different. Here is what has changed and what has not.

What is different

For the first time, the terms are public and specific. According to Axios, The Washington Post, and The Hill, the framework is a 60-day memorandum of understanding with these provisions:

Unrestricted shipping through the Strait of Hormuz with no tolls and no harassment. Iran clears all mines from the strait within 30 days. The US lifts its naval blockade on Iranian ports proportionally as commercial shipping resumes. The US issues sanctions waivers allowing Iran to sell oil freely. Iran commits not to pursue nuclear weapons. Both sides negotiate the terms of a permanent agreement during the 60-day window, including the duration of a uranium enrichment moratorium (the gap has narrowed from Iran's 5 years versus the US demand for 20 down to a reported 12 to 15 year range).

Multiple outlets report that Iranian negotiators have signaled internal backing. Both Trump and mediators indicated the deal could be announced as soon as Sunday. This is the most concrete framework since the crisis began 13 weeks ago.

What has not changed

Trump has not signed. As of Thursday evening, the deal requires his final approval, which he has not given. Iran's senior leadership has not formally approved the deal either, though negotiators have "signaled" backing. The ceasefire, which has been in place since April 8, continues to be violated by both sides. On the same day the tentative agreement was reported, the US destroyed Iranian drones near the strait, Kuwait intercepted a missile, the IRGC warned about unauthorized entry, and Iran accused the US of ceasefire violations. PortWatch recorded 4 transits on May 24, the lowest reading in weeks.

The pattern is familiar: diplomatic optimism runs ahead of physical reality. But this time the gap between the two is narrower. The terms are specific. The reporting is from multiple credible outlets citing named officials. The question is no longer "is there a deal" but "will both leaders sign it, and will it hold."

Why it might not matter for inflation

Even in the best-case scenario where the deal is signed Sunday, mines are cleared in 30 days, and transit normalizes over 60 to 90 days, the inflation pipeline laid out in Week 12 is already loaded. PPI at 6.0% means producers are absorbing cost increases that have not been fully passed through to consumers yet. April CPI was 3.8%. The gap between producer costs (6%) and consumer prices (3.8%) is 2.2 percentage points of margin compression that companies will either absorb (hurting earnings) or pass through (pushing CPI higher). Both outcomes are negative for equities.

The fertilizer damage is locked in. Food inflation arrives in Q4 regardless. Real wages are already negative. Shelter inflation has its own inertia. Warsh's first meeting is June 17 and rate hike odds are at 40% by December. A deal that resolves the energy channel over three months still leaves four of the five inflation channels from last week's analysis intact.

The deal, if it works, converts the inflation story from "structural and worsening" to "elevated and slowly resolving." That is meaningfully better. But it is not "back to normal." The question for investors is whether "better but still elevated" is already priced in or whether the market is pricing in "fully resolved."

What Could Go Wrong

The deal is signed and holds. Mines cleared by late June. Transit recovers through the summer. Oil drops to $75 to $85. Gas falls below $3.50 by August. The energy inflation channel deflates. Food inflation still hits in Q4 but is contained to one season. CPI drifts toward 3% by early 2027. This is the best realistic outcome, and for the first time in 13 weeks, it has specific terms and a plausible timeline behind it.

Trump or Iran's leadership rejects it. The deal collapses over the nuclear enrichment timeline, the sanctions scope, or domestic politics on either side. Oil snaps back above $110. Gas heads toward $5.00. The Fed is stuck. We have seen this movie twice already (Weeks 10 and 12), and each time the rejection drove oil higher from a lower base.

Signed but not enforced (most probable). The MOU is signed. The 60-day clock starts. But mine clearance takes longer than 30 days. Insurance companies wait to see sustained safe passage before reinstating coverage. Carriers restart slowly. Iran tests the boundaries of "unrestricted." Oil drops to $80 to $90 but not $75. The inflation pipeline keeps draining for months rather than weeks. The middle path from Week 11 takes a different form but the outcome is similar: prolonged friction, not clean resolution.

The Bottom Line

Week 13 scorecard: transits dropped to 4 (the worst reading in weeks), Brent fell to $95 on the most concrete deal framework yet, gas pulled back to $4.43, the spread held steady, fertilizer remains locked in, and PPI at 6% added another stage to the inflation pipeline. For the first time, there are specific, published terms for a deal that multiple credible outlets are reporting. For the first time, it feels like the crisis might have an end date.

But even if the deal is signed Sunday, the inflation pipeline is already loaded. PPI at 6% versus CPI at 3.8% means 2.2 points of producer costs that have not reached consumers yet. The fertilizer damage arrives in Q4. Real wages are negative. The Fed has not met under its new chair. A deal converts the inflation outlook from "getting worse" to "slowly getting better." That is real progress. It is not a return to normal. Watch the dashboard, not the headlines. Data over narrative. Always.