Just when it looked like the Strait of Hormuz might finally be opening up, the market got whiplash—again.

Oil prices barrelled higher again on Thursday, extending their volatile run, as reports of a potential ban on U.S. and Israeli vessels using the crucial waterway reignited supply fears. Brent crude jumped nearly four per cent, while West Texas Intermediate (WTI) added nearly three per cent. By the close, Brent had settled up $3.04 at $82.49 a barrel, with WTI settling up $2.07 at $77.29.

The Optimism Fades

Earlier this week, markets had rallied hard on hopes that a U.S.-Iran deal to reopen the strait was imminent. Treasury Secretary Scott Bessent even suggested a deal could come “today or tomorrow”. Oil prices plunged more than 5 per cent as investors priced in a reopening, stripping the geopolitical risk premium from crude. Stocks hit record highs on the optimism.

But that optimism is rapidly fading.

According to Again Capital’s John Kilduff, reports that a potential agreement might actually restrict U.S. and Israeli vessels from entering the strait have dampened expectations significantly. “This situation is just far from settled and you can only give hope so much of a chance, so the market is taking back some of the optimism about the situation,” Kilduff said.

What’s Actually Happening?

The confusion stems from conflicting signals out of Washington and Tehran. While the U.S. has insisted on freedom of navigation without tolls, Iran has been negotiating with Oman over a possible agreement that could give Tehran greater sway over the waterway. Reports suggest Iran may be pushing for a route that would effectively give it control over traffic through the strait.

On top of that, Iran-aligned Houthi rebels in Yemen have reportedly attacked “Saudi deployments,” ramping up concerns about Red Sea shipping and adding another layer of supply risk.

Markets React

The rebound in oil prices weighed on U.S. equity markets, with the Dow retreating from a record close and the Nasdaq ending flat. European main indices closed mixed, with London’s FTSE 100 losing 0.2 per cent while Frankfurt and Paris climbed modestly.

In Asia, tech-heavy indices were weighed down by concerns over AI profitability, with Seoul shedding more than four per cent—led by a 10 per cent plunge in SK hynix. Tokyo’s Nikkei also lost ground.

Chris Beauchamp, chief market analyst at IG, noted that while rising oil prices have “crimped some of the optimism seen earlier in the week,” prices are still “much lower than a week ago”.

The Bottom Line

For now, the market is stuck in a holding pattern, swinging between hope and fear with every new headline out of the Middle East. One day it’s a deal, the next day it’s a ban. One day oil crashes, the next day it soars.

And with Friday’s U.S. jobs report looming, investors have even more reason to stay cautious.

One thing’s for sure: the Strait of Hormuz isn’t just a geopolitical flashpoint—it’s become the single biggest driver of global market sentiment. And until there’s actual clarity, expect more whiplash.