Banks and economists base their predictions on very optimistic timelines of the strait reopening soon. The alternative is truly apocalyptic.

Crude oil prices appear to encode an optimistic outcome.

The negative reading of that signal is massive demand destruction like a global recession. So a reduction in oil supply and a reduction in demand equals only a minor rise in prices.

So "the market" is conventional "wisdom"?

It's the "wisdom" (rough consensus) of those willing to put their money where their mouth is. So, yes.

By what objective standards does a price 41% higher than prewar encode an optimistic outcome?

https://xkcd.com/904/

A 10% reduction in supply of a commodity with fairly inelastic demand usually results in a lot more than a 40% increase in price.

I say it usually results in a lot less. Prove me wrong.

An infinitesimal reduction in supply of a product with a perfectly inelastic demand curve will result in an infinite increase in price.

More concretely, the oil supply tightening in response to COVID was considerably smaller than todays, yet oil prices spiked higher than we have today.

> An infinitesimal reduction in supply of a product with a perfectly inelastic demand curve will result in an infinite increase in price.

And an infinitesimal reduction in supply of a product with a perfectly elastic demand curve will result in zero increase in price. So the real value has to lie somewhere between 0 and infinity. That's not a particularly useful prediction.

> More concretely, the oil supply tightening in response to COVID was considerably smaller than todays, yet oil prices spiked higher than we have today.

That is not what happened, oil prices tanked in response to covid despite global oil production falling by about 10%. 2020 had the lowest average price of Brent Crude since 2004, and did not recover to the level immediately before the pandemic until March 2021. You may have been thinking of the elevated prices in early 2022 shortly after the Russian invasion of Ukraine which peaked in May 2022. Of course that war which has continued for years affecting a major oil exporting nation only led to an 18% increase in price, quite a bit below the 41% increase seen in the current situation.