Hormuz Deadlock and China's Retaliation Squeeze Markets From Both Ends

Two escalation fronts are converging on markets simultaneously, and neither shows signs of de-escalating before the other resolves. Brent crude extended its rally for a fourth consecutive session on Monday, trading above $84 per barrel near $85^[1][2], as the Strait of Hormuz remains all but closed to normal shipping. Meanwhile, Beijing’s broadest trade retaliation since last October’s Busan truce has placed US firms, drone exports, and the polysilicon supply chain squarely in the crosshairs^[3]. Together, these twin pressures are reshaping the risk map for the second half of 2026.

The Hormuz Standoff: A Battle of Two Clocks

Vessel traffic through the Strait of Hormuz has collapsed to a fraction of pre-conflict levels. Consultant Kpler recorded only eight vessels crossing on August 5 — five tankers and three bulk carriers — down from more than 100 per day before the conflict began^[4]. Iran’s state news agency Fars published a draft plan last Thursday that would ban US and Israeli ships from transiting the strait entirely, require compensation from “nations that have harmed Iran” before allowing transit, and impose penalties on violators equivalent to 20% of the value of cargo aboard^[5].

The plan is under review by an Iranian parliamentary committee, and its restrictive conditions contradict the more optimistic signals from Washington. Treasury Secretary Scott Bessent had told CNBC on Tuesday that a deal to open Hormuz with freedom of movement could come as soon as Wednesday^[5]. A deal has still not been announced. Iran and Oman are reportedly working on a framework that would route inbound traffic through Iranian waters and outbound traffic through Omani waters, but Iranian Foreign Minister Abbas Araghchi said Tehran is not currently holding direct talks with the US and reiterated that reopening Hormuz would require Washington to lift its blockade of Iranian shipping and provide compensation for war damages^[2].

President Trump told Axios that Washington is now “low-keying it” and “only semi-negotiating with them,” betting that the economic pressure of the US maritime blockade will force Iran to crack first^[6]. Iran appears to be making the opposite calculation: that Trump cannot indefinitely withstand high energy prices, dwindling military resources, and growing political pressure at home ahead of the November midterm elections. With average US petrol prices back above $4 per gallon^[6], the disruption has become a domestic political problem, not just a foreign policy one.

The threat to shipping is not confined to Hormuz. Iran-backed Houthi militants in Yemen claimed an attack on Saudi Arabia’s Jazan refinery over the weekend, while a tanker operated by Abu Dhabi National Oil Co. came under attack in Hormuz^[2]. Another tanker reported hearing two explosions off the coast of Oman while transiting the strait last week^[5]. Saudi crude and condensate flows through the Bab al-Mandeb strait have also crimped, compounding the supply disruption^[4].

Oil Market Reaction

Brent crude rose 3.8% to close at $82.49 on Thursday, August 6^[5], and has continued climbing since, reaching approximately $84.96 on August 10, up 1.69% from the prior day^[2]. WTI settled at $77.29 on Thursday^[5]. Despite the fourth straight session of gains, Brent still posted a weekly decline of more than 7% as earlier hopes for a Hormuz deal briefly pulled prices lower^[2].

The energy supply crunch is starting to feel more than temporary. More than five months after the Middle East Gulf conflict began, the disruption has reached a point where analysts at Energy Intelligence note it is reshaping expectations for global supply well into 2027^[4].

US-listed oil majors sold off on Friday’s close. ExxonMobil finished at $152.94, down 1.2%^[7]. Chevron closed at $186.57, down 1.4%^[7]. Baker Hughes and Halliburton both declined roughly 1.9%^[7]. The USO oil ETF closed at $117.98, down 0.7%^[7]. In pre-market trading on Monday, Baker Hughes ticked up 0.5% to $61.83 and Halliburton rose 0.8% to $32.14^[7].

China Flips the Script on the Tech War

While oil markets absorb the Hormuz shock, a second escalation is unfolding in US-China trade. On August 5, China’s Ministry of Commerce barred Chinese entities from doing business with seven American companies and organizations, tightened export controls on US-bound drones and related technology, and prohibited Chinese firms from cooperating with US compliance and certification bodies, including in mandatory Chinese factory inspections^[3].

Six of the named entities were sanctioned over their involvement in Xinjiang-related measures, along with Arizona-based Compliance Testing, which was blacklisted for assisting FCC actions against Chinese products. This marks the first time Beijing has sanctioned firms that help enforce the Uyghur Forced Labor Prevention Act^[3]. Eurasia Group noted that the measures carry “significant implications” for US businesses operating in China but are designed to be reversible ahead of bilateral talks^[3].

The pattern is clear: China is starting to replicate Washington’s own sanctions playbook. As BNP Paribas analyst William Bratton observed, “While the various recent US measures are focused on impeding the use of Chinese products and technologies in US supply chains and infrastructures, China’s response seems more targeted at constraining the flow of Chinese products and technologies to the US”^[3].

Beijing also launched its first-ever national security investigation in the foreign trade sector, targeting imported printing and copying equipment installed with foreign software. Eurasia Group warned that if the probe leads to a software restriction, its effect would be comparable to US curbs on Chinese software in connected vehicles last year, and the mechanism could be extended to other sectors^[3].

Polysilicon and the Solar-Chip Nexus

On the same day Beijing announced its retaliation, President Trump signed a proclamation under Section 232 of the Trade Expansion Act imposing price floors and a 15% tariff on products made from polysilicon, the raw material underpinning both semiconductor and solar manufacturing^[8]. The White House set minimum import prices of $21 per kilogram for polysilicon, $100 per kilogram for polysilicon ingots and wafers, $0.22 per watt for solar cells, and $0.38 per watt for solar modules^[8].

The trade protections take effect on December 4^[8]. Trade attorney Tim Brightbill warned that the delayed implementation could trigger a surge of imports in the coming months as companies front-load purchases ahead of the deadline^[8].

The move directly targets supply chains dominated by China, which produces the majority of the world’s polysilicon. US solar manufacturers including First Solar, T1 Energy, and Qcells applauded the action^[8]. The solar sector ETF (FAN) closed up 1.4% on Friday^[7], while the leveraged semiconductor ETF SOXL surged 6%^[7] and the VanEck Semiconductor ETF (SMH) gained 2%^[7].

The $100 Billion Tariff Refund Complication

Adding to the trade-policy complexity, the Trump administration has refunded approximately $100 billion in tariffs since the Supreme Court ruled against the use of emergency powers to impose them^[9]. Chinese firms are now seeing millions in tariff refunds^[9], a development that complicates the leverage calculus on both sides. The refunds reduce the economic bite of the tariff regime even as both governments layer on new restrictions.

Memory Chips: A Separate Pressure Point

The chip sector faces an additional wrinkle from the memory market. Micron Technology’s stock fell sharply after Citi slashed its price target on memory pricing risks, with analyst concerns that DRAM/NAND price gains may decelerate and peak around Q2 2027^[10]. SanDisk’s weaker NAND flash guidance on August 6 triggered a broader memory-chip selloff^[10]. Amazon’s announcement that it was raising 2026 capital expenditures to $220 billion from $200 billion, citing higher memory costs^[10], underscores how polysilicon and memory supply chains are becoming a choke point for hyperscaler AI infrastructure spending.

What to Watch Next

• Hormuz negotiations: Whether Iran and Oman finalize a reopening framework this week. Any deal that includes Iran’s demand for compensation or a US blockade lift would mark a significant shift; a deal that falls short of full freedom of navigation would keep Brent elevated.

• Houthi escalation: Further attacks on Saudi refineries or Gulf tankers would harden the risk premium embedded in oil prices. Watch for whether the Bab al-Mandeb disruption widens.

• Xi’s Washington visit: The September summit remains on track, but Eurasia Group flags that more aggressive US steps — restricting Chinese open-weight AI models or curbing cloud-based chip access — would put the truce at risk^[3].

• Polysilicon front-loading: Between now and December 4, watch for a surge in polysilicon and solar-module imports that could temporarily distort trade data and pressure domestic US producers before the price floors take hold.

• US midterms as Iran’s clock: Iran’s leverage grows with every week that petrol prices stay above $4. The closer to November, the more negotiating power Tehran accrues — and the greater the risk that Trump chooses military escalation over continued waiting.

• Memory pricing trajectory: If DRAM/NAND prices begin rolling over while polysilicon costs rise, hyperscaler capex margins compress. Amazon’s $220 billion signal makes this a leading indicator for AI infrastructure spending.