Strait of Hormuz traffic returns to normal by end of April

Context and Timeline: As of March 31, 2026, the Strait of Hormuz has been effectively closed for 31 days following the assassination of Iran's Supreme Leader Ali Khamenei on February 28, 2026. The IRGC closed the Strait and conducted 20+ attacks on commercial vessels through March 24. Traffic collapsed from ~100 ships/day pre-war to a 7-day moving average of 5.8 transit calls in early March.

Resolution Requirements: For YES resolution, the IMF Portwatch 7-day moving average must reach ≥60 transit calls by April 30, 2026 - just 30 days away. This requires a 10x increase from the early March baseline of 5.8, or reaching 60% of pre-war normal traffic levels (100 ships/day).

Barriers to Resolution:

1. Military/Security Clearance (Most Critical):

   • U.S. military campaign began March 19, less than 2 weeks ago
   • Active IRGC naval threats, mines, drone/missile capabilities remain
   • Mine clearance operations historically take weeks-to-months even with active military support
   • No historical precedent for full Strait closure and rapid reopening

2. Diplomatic Requirements:

   • Pakistan peace talks ongoing as of March 31, but no breakthrough reported
   • Iranian leadership succession post-Khamenei assassination creates negotiating uncertainty
   • IRGC has strong incentive to maintain leverage through Strait control
   • Even with ceasefire, implementation and verification would take days

3. Logistical Redeployment:

   • Hundreds of vessels backed up in Gulf of Oman
   • Many ships have rerouted around Africa (adding 2+ weeks to voyage)
   • Insurance premiums must normalize before commercial shipping resumes at scale
   • Shipping companies require confidence in sustained security, not just momentary clearance
   • Even if Strait declared "safe" on April 15, insufficient time to redeploy fleet and build 7-day average to 60

4. Timeline Compression:

   • 30 days remaining is extraordinarily tight
   • Requires: (a) immediate ceasefire/peace agreement, (b) rapid mine clearance (1-2 weeks minimum), (c) insurance normalization (days), (d) vessel redeployment (1-2 weeks), and (e) ramp-up to 60+ ships/day sustained traffic
   • These must occur sequentially, and 30 days barely accommodates best-case execution

Scenario Analysis:

Bear Case (75% probability): Conflict continues through April or peace talks drag on. Even if breakthrough occurs mid-April, insufficient time for mine clearance and fleet redeployment to reach 60 transit calls by April 30. Traffic remains in single digits or low double digits. Outcome: NO resolution.

Base Case (13% probability): Diplomatic breakthrough occurs April 1-7, U.S. military successfully clears main transit lanes by April 15, insurance markets respond quickly, and early-mover vessels begin transiting April 18-20. By April 25-30, traffic reaches 60+ ships/day for at least one 7-day period. This requires near-perfect execution across military, diplomatic, and commercial domains. Outcome: YES resolution.

Bull Case (12% probability): Unexpected rapid Iranian capitulation or internal regime change accelerates peace timeline. IRGC naval forces collapse faster than expected. Commercial shipping resumes aggressively by mid-April with government indemnification of insurance risk. Outcome: YES resolution.

Market Comparison: Current market odds: 19.5% (YES) My estimate: 12% (YES)

Edge Assessment: The market at 19.5% appears slightly overoptimistic given the extreme timeline compression and sequential dependencies required. However, the gap is modest (7.5 percentage points), and there's meaningful uncertainty about:

• Current traffic levels as of March 31 (data only shows "early March" at 5.8)
• Effectiveness of 12-day-old U.S. military campaign
• Pakistani peace talk progress
• Potential for rapid Iranian regime change post-assassination

The market may have information about recent military/diplomatic progress not reflected in the research data, which is mostly from mid-March sources.

Key Insight: Even if peace is declared April 10, the logistical challenge of getting 60+ ships/day through a newly-cleared strait by April 30 is formidable. The 7-day moving average requirement means traffic must be sustained at 60+ for a full week, not just momentarily spike. This requires confidence from hundreds of shipping companies simultaneously, which historically builds gradually, not instantly.

I estimate 12% probability, below the market's 19.5%, suggesting a modest edge on the NO side, though with significant uncertainty given the fluid military and diplomatic situation.

MODEST EDGE ON NO: My estimate of 12% is 7.5 percentage points below the market's 19.5%, suggesting the market is slightly overoptimistic about the probability of achieving 60+ transit calls within the compressed 30-day timeline. The edge is meaningful but not overwhelming given significant uncertainty around: (1) current traffic levels as of March 31 vs early March, (2) progress of Pakistani peace talks, (3) effectiveness of U.S. military campaign, and (4) potential for rapid Iranian regime dynamics post-assassination. The market may be incorporating recent diplomatic/military intelligence not reflected in the research data.

The 30-day timeline requires near-perfect sequential execution across diplomatic breakthrough, military clearance, insurance normalization, and commercial redeployment - each typically multi-week processes. Even best-case scenarios struggle to fit within April 30 deadline. However, the tail-risk scenarios (unexpected Iranian collapse, government insurance indemnification, surge from backed-up vessels) have enough probability mass to justify market being above 10%.

Recommended position: Small-to-moderate NO position, but not maximum conviction given fluid military/diplomatic situation and information uncertainty. Market at 19.5% is not egregiously mispriced, but appears 5-10 percentage points too high based on available evidence.