There's a scene in The Big Short that haunts me. Michael Burry is looking at the housing market numbers, sees the abyss forming, and the entire market keeps dancing like it's 1999. He bets against it. The market laughs at him. Months later, the world collapses.
Yeah. We're living through something similar — except this time the stage is the Strait of Hormuz.
The Chokepoint the World Pretends Doesn't Exist
For those who don't know — and apparently the futures market counts itself among this crowd — the Strait of Hormuz is that tiny little strip of water between Iran and Oman through which roughly 20% of all the oil consumed on the planet passes. Twenty percent. One-fifth of the whole party.
Any geopolitical tension there should make the price per barrel pop like popcorn in a microwave. It's basic. It's corner-store logic. If the guy who delivers the flour threatens to stop, the price of bread goes up.
But what's the futures market doing? Basically shrugging it off.
Oil futures contracts barely reacted to the latest Hormuz shock. The price curve remains well-behaved, almost drowsy, as if we were talking about a ripple on a pond and not a potential energy tsunami.
This is insanity. Or arrogance. Or both at once.
Why the Market Is Wrong (Again)
There are a few explanations — none of them good enough to justify this complacency.
First: the market is addicted to the narrative that "things always work out in the end." Every time there's been tension at Hormuz — 2019 with the drone strikes on Saudi facilities, incidents with Iran — oil spiked, then came back down. A conditioned reflex was born: "it spikes and comes back, chill out."
The problem? Nassim Taleb would call this the turkey illusion. The turkey gets fed every day for 364 days. On day 365, it finds out the world has changed. The fact that previous crises resolved themselves guarantees absolutely nothing about the next one.
Second: overconfidence in strategic reserves and OPEC+ spare capacity. Yes, there are reserves. Yes, Saudi Arabia can open the spigot a little more. But "a little more" doesn't replace 20% of global flow if the Strait actually closes, even for just two weeks.
Third — and this one's the most dangerous: today's futures market is dominated by algorithms and short-term speculators who don't understand a damn thing about geopolitics. They read weekly inventory data from the API and the DOE, adjust positions in milliseconds, and think they're managing risk. They're managing spreadsheets. Real risk doesn't fit in a quantitative model.
What History Teaches (For Those Willing to Listen)
In 1973, the Arab oil embargo caught the world with its pants down. The price per barrel quadrupled. Western economies plunged into recession. Nobody "priced in" any of that before it happened.
In 1990, Iraq's invasion of Kuwait made oil double in weeks. The market was calm before that one too.
The pattern is always the same: complacency before, panic after. And the ones who foot the bill are the unprepared — the average investor, the fund that was leveraged on the wrong side, the importing country that didn't hedge.
So What, Why Should I Care?
If you have any exposure to energy-linked assets — and if you live on planet Earth, you do — pay attention.
I'm not saying go out and buy oil calls tomorrow. I'm saying the market is underpricing a real risk. And when the market underprices risk, opportunity shows up for those with the stomach and the conviction.
Buffett likes to say: "Be fearful when others are greedy, and greedy when others are fearful." I'd adapt that: be alert when others are complacent.
The Strait of Hormuz doesn't need to close to cause damage. All it takes is for the perception of risk to shift. And when it shifts — if it shifts — the futures market will adjust with all the gentleness of a punch to the gut.
The question left on the table is simple: are you on the side that ignores the risk, or the side that prepares for it?
