Tonight, our entire team is having a meeting to discuss the blockade of the Strait of Hormuz and its potential impacts on the global financial market, aiming to keep it simple and understandable, mainly focusing on inflation effects and related investment opportunities:

🛢️ What does the blockade of the Strait of Hormuz mean?

Imagine this: the global oil lifeline is being choked.

The Strait of Hormuz is one of the most important energy transportation routes in the world. Approximately 20% of the world's crude oil and 30% of liquefied natural gas (LNG) pass through here. This strait is like the throat of an "energy highway," only a few dozen kilometers wide; once blocked, the global oil and gas supply will immediately be "stuck."

💥 Once blocked, oil prices will soar!

If the Strait of Hormuz is truly closed, tankers cannot get out, and the market will panic immediately, leading to a tense supply-demand relationship, making a surge in oil prices inevitable.

Oil prices have already risen 35% from the low in April, and this is before any incident has occurred. If the conflict escalates, according to a report from JPMorgan, oil prices could jump to $120–130 per barrel.

📈 How much does rising oil prices affect inflation?

Here’s a key piece of data: for every $10 increase in oil prices, the Federal Reserve estimates that the CPI will rise by 0.2% (20 basis points).

Oil prices have already increased by nearly $20, theoretically pushing inflation up by 0.4% (40 basis points).

If oil prices rise to $120–130 as predicted, inflation could potentially break through 5% again. And we all remember that the last time the CPI reached 5% was in 2023, when the Federal Reserve was still raising interest rates!

💡 What will the Federal Reserve do if inflation rises?

This is crucial. The market originally expected the Federal Reserve to cut interest rates twice this year, starting in September.

However, rising oil prices leading to a rebound in inflation effectively "blocks" this path: the expectations for rate cuts are lowered, which is negative for the stock market, especially tech stocks; if inflation worsens, the Federal Reserve may even reconsider the possibility of raising rates again, or at least maintain high rates for a longer period; the bond market will also become tense, and U.S. Treasury yields may rise.

🧨 Not just oil prices, geopolitical risks will also significantly increase market volatility

The blockade of the strait is not just a simple economic issue, but a signal of escalating geopolitical tensions, meaning:

1️⃣ Global risk assets will be impacted (stock market safe-haven, gold rising, VIX volatility increasing);

2️⃣ Income for energy-producing countries in the Middle East will surge, but cost pressures will increase for global importing countries;

3️⃣ Safe-haven assets will rise: such as gold, U.S. Treasuries, and possibly #BTC, as the wealthy in Dubai are relatively close to the Strait of Hormuz.

📊 How should investors respond?

If you are an investor, you need to understand: this is not a small fluctuation in oil prices; this is a moment of "risk repricing" for the global financial system.

1️⃣ Pay attention to crude oil, energy stocks, inflation-benefiting assets (such as gold, resource ETFs), and Western oil companies where Buffett holds large positions;

2️⃣ At the same time, guard against the pullback pressure on overvalued tech stocks and growth stocks, as well as altcoin pullbacks;

3️⃣ Monitor the attitudes of Federal Reserve officials; if they start to become "hawkish," the market may adjust quickly;

Recommendation: Due to increased macro risk aversion and heightened volatility, it is not advisable to heavily invest in a single direction; instead, diversify your portfolio to hedge risks.

In summary: If the Strait of Hormuz is blocked, it is not just a matter for the Middle East; it could trigger a chain reaction in the global market.

From oil prices, inflation, Federal Reserve interest rate policies, to the stock and bond markets, all will be affected. Investors must grasp this main thread, balancing defense and opportunity. 🧐

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