The Strait of Hormuz has been effectively closed for over two weeks, leading to a more than 40% increase in oil prices from pre-war levels, currently trading around $103 per barrel. The U.S. has conducted airstrikes on military targets near the Strait, threatening to strike Iran's oil infrastructure if the waterway remains closed.
A chart published by the Financial Times has raised a question that the crypto market has yet to answer.
The $175 Scenario
The chart plots real oil prices during every major geopolitical shock since 1972. The oil price peak during the 1979 Iranian Revolution nearly surpassed all other events, except for the demand peak in 2008. We are currently in the early stages of the eighth event on this chart.
Iran's new Supreme Leader, Ali Khamenei, has vowed to continue closing the Strait of Hormuz as a "tool to pressure enemies." The EU has rejected Trump's proposal to form a military coalition to reopen the Strait.
Oil Prices' Impact on Bitcoin
However, the full picture is more complex. Bitcoin's performance has been noteworthy – but will this last? Bitcoin's correlation with gold has just dropped to -0.88, its lowest level since November 2022. This indicates Bitcoin is moving in the opposite direction of gold, and strongly so. Capital inflows into Bitcoin have pushed its price up to $74K, while gold has seen a slight decline.
The Dollar Question
Iran is selectively allowing oil shipments to China, India, and Turkey, and is reportedly considering demanding these transactions be settled in Yuan. If oil prices are traded in large volumes in Yuan, it would significantly enhance the structural appeal of non-dollar assets. At $103 oil prices, Bitcoin hovers in the $72K-$73K range. At $175, the market has not yet priced this in.
Higher oil prices fuel inflation expectations, which could lead to tighter Federal Reserve policy, typically reducing investor demand for risk assets like Bitcoin, causing short-term price drops. Analysts warn that a prolonged closure of the Strait of Hormuz could trigger an oil price surge of approximately 150%, matching the historic price shock of 1979 and pushing crude oil close to $175 per barrel.
If major oil trades shift to the Yuan, it could undermine the dollar's global dominance. This structural shift could help boost the appeal of non-dollar assets like Bitcoin as a store of value.