10-Day Ceasefire Proposal Emerges, but Energy, Shipping, and Capital Cost Risk Chains Remain Unresolved

On July 21, a new diplomatic window opened in the US-Iran conflict. Iran confirmed it received a "10-day ceasefire" proposal from mediators, with Qatar and Pakistan pushing both sides to return to the status quo prior to July 9 to restore the implementation of previous memorandums of understanding. However, on the same day, the US military launched airstrikes against Iranian targets for the tenth consecutive day, and Trump publicly stated that if Iran caused further US military casualties, it would face "much greater consequences," indicating that military pressure and diplomatic engagement are still progressing simultaneously.

Market participants should note that such ceasefire proposals are more of a technical arrangement to buy time for negotiations rather than a signal that the conflict is nearing an end. The real core differences between the US and Iran still center on control over the Strait of Hormuz and shipping security issues. Iran has clearly stated that it views the Strait of Hormuz as a lifeline for national security, while the US sees the restoration of commercial shipping as one of the main justifications for continuing military action. Until substantial progress is made on this issue, the energy supply chain is unlikely to return to normal.

A larger variable comes from the Red Sea. The Houthis announced a maritime ban on Saudi Arabia, which stated it would take necessary military action to ensure the safety of the Bab el-Mandeb Strait. This means that the global market is simultaneously facing risks from two energy arteries: the Strait of Hormuz, responsible for the export of crude oil from the Persian Gulf, and the Bab el-Mandeb Strait, which is related to Saudi Arabia's export of approximately 4.9 million barrels per day through the Red Sea. Even if the Houthis ultimately do not actually blockade the shipping lanes, this declaration alone is enough to drive up insurance costs, alter vessel scheduling, and disrupt shipping expectations.

In addition to energy risks, new supply shocks are also emerging from the Black Sea. The Kazakh CPC oil terminal was forced to halt operations after tankers were attacked again, and grain exports from Ukraine and Russia were simultaneously hindered. This means that the market is no longer just worried about Middle Eastern crude oil but is facing dual supply pressures of "energy + food." When rising oil prices push up transportation and fertilizer costs, and Black Sea grain exports are restricted, inflationary pressures in emerging markets and import-dependent countries will further escalate.

These supply shocks resonate with the renewed hawkish discussions within the Federal Reserve. Former New York Fed President Dudley believes that demand expansion driven by AI investments, rising energy prices, and a still relatively loose financial environment may put greater pressure on the Fed to raise interest rates in the fall; however, Morgan Stanley insists on maintaining interest rates unchanged for the year, arguing that the market's self-tightening financial conditions are equivalent to several rate hikes. What truly deserves attention is not which side's viewpoint prevails, but the Fed's tolerance between "energy inflation" and "economic slowdown."

Wall Street funds have already adopted defensive strategies in advance. US money market funds managing over $8 trillion in assets have recently significantly shortened duration, increasing holdings in overnight repos and floating-rate bonds, reflecting that large funds prefer to forgo some returns to retain greater reinvestment flexibility. This is essentially preparing for two scenarios: if oil prices continue to rise, the Fed may be forced to maintain high rates for a longer period; if the conflict suddenly cools, the repricing of short-term rates may also happen very quickly.

For risk assets, in the current environment, the greatest pressure does not come from a single event but from the simultaneous lack of predictability in policies and supply chains. Any new actual disruption at the three key nodes of the Strait of Hormuz, Bab el-Mandeb Strait, and Black Sea could quickly transmit to oil prices, grain prices, and bond yields; meanwhile, the Fed, under the leadership of Waller, has deliberately reduced forward guidance, making it more difficult for the market to lock in policy paths in advance.

In the short term, the market will focus on three observation points: whether the 10-day ceasefire proposal can receive substantial responses from both the US and Iran, whether the Houthis will take action against Saudi-related vessels, and when the CPC terminal will resume shipments. These three signals will determine whether energy risks remain at the "expectation level" or further evolve into a real supply gap.

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