Bessent Says US-Iran Deal Could Reopen Hormuz, Sending Brent Down 6.8%

Bessent said Washington may reach an agreement with Iran as early as Tuesday to reopen the Strait of Hormuz, sending Brent crude down 6.8 percent to $83.98 a barrel on hopes of restored oil flows.

"We may reach an agreement with Iran as early as tomorrow to reopen the Strait of Hormuz," Scott Bessent, US Treasury Secretary, said, according to US media reports.

The drop extends a volatile stretch in which Brent traded above $90 on July 31 after gaining 24 percent over the month. Before the conflict, roughly 20.9 million barrels of oil and petroleum products moved through the strait daily, about 20 percent of global liquid fuel consumption and a quarter of all oil shipped by sea, plus 11.4 billion cubic feet of liquefied natural gas.

Yet even a signed accord would not end the energy crisis. The months of confrontation have spread beyond a single maritime route, hitting production, tanker availability, insurance, strategic reserves and a second chokepoint, the Bab el-Mandeb Strait. Full restoration of flows could take four to six months, according to a July Reuters survey, with most lost Middle Eastern output not expected back until early 2027.

Reopening Won't Restore Flows Overnight

Official permission for tankers to cross the strait would not be enough. Shipowners must be convinced the route is safe, insurers must cut war-risk premiums, ports must resume loading schedules, and producers must restart shut-in wells. As of July 31, only four cargo vessels crossed Hormuz that day, including two very large crude carriers each carrying about 2 million barrels.

The transport and insurance crisis will not disappear the moment an agreement is signed. In March, the cost of shipping oil on supertankers from the Persian Gulf to Asia reached its highest level since at least November 2005, as vessels already loaded became trapped inside the Gulf.

OPEC+ production increases offer limited relief. The group's decision to raise quotas by 188,000 barrels a day from September amounts to less than 1 percent of pre-crisis Hormuz volumes and less than 0.2 percent of global output. According to a Reuters survey, the eight OPEC members subject to quotas pumped 20.276 million barrels a day in June, 6.246 million below their combined target, with Russia producing almost 1 million barrels below its quota.

Bab el-Mandeb Adds a Second Chokepoint

Hormuz can no longer be considered separately from Bab el-Mandeb. After traffic through Hormuz declined, Saudi Arabia redirected about 5 million barrels a day through its East-West Pipeline to the Red Sea port of Yanbu, more than double the pre-war level, with roughly 80 percent of those shipments passing through Bab el-Mandeb on the way to Asian buyers. That corridor has itself come under threat after Yemen's Houthis threatened to block vessels linked to Saudi Arabia.

Bypassing Bab el-Mandeb sharply raises costs. The usual route from Yanbu to Taiwan takes about 19 days; a voyage via the Suez Canal, the Mediterranean and around the Cape of Good Hope takes roughly 48 days. Fuel costs alone rise from about $1.26 million to $2.87 million per voyage, with Suez transit adding another $1 million in fees. The SUMED pipeline, with capacity of about 2.5 million barrels a day, cannot replace the roughly 7 million barrels a day Saudi Arabia exports.

Overland alternatives are similarly limited. Saudi Arabia's East-West Pipeline and the UAE's pipeline to Fujairah together can move about 4.7 million barrels a day, less than a quarter of normal Hormuz volumes.

The market now has little buffer to absorb another shock. In early June, the US Energy Information Administration estimated Middle East production losses exceeded 11 million barrels a day and reported OECD oil stocks at their lowest since 2003. By late July, US commercial crude inventories had fallen to their lowest since 2018.

A rapid recovery could also create a new problem. If OPEC+ producers raise output while Middle East exporters restore shipments and Iran, under sanctions relief, expands official sales, the current shortage could flip to oversupply and a sharp price fall. For OPEC+, that would pressure fresh production restrictions.

Reopening Hormuz may remove the principal symbol of the crisis, but it will not remove its consequences. Real stabilization requires a durable US-Iran agreement, credible maritime security guarantees, an end to Red Sea attacks, restored infrastructure, lower insurance premiums and replenished reserves. Until then, additional OPEC+ output remains a secondary factor.

This article is for informational purposes only and does not constitute investment advice.