Key Takeaways:
Oil flows through the Strait of Hormuz may not return to prewar levels until the end of 2026 even after a ceasefire deal, as mine clearance, vessel logistics and production restarts face months of delays.
The tentative US-Iran agreement to reopen the Strait of Hormuz sent crude prices lower Monday, but restoring the waterway that carried a fifth of the world's oil before the war could take until the end of 2026, according to Jeff Currie of Abaxx Markets.
"The uncertainty remains quite high" around maintaining the ceasefire, and the challenges of restarting Gulf production mean flows may not normalize until late 2026, Currie, executive co-chairman at Abaxx Markets, said in an interview.
Some 500 commercial vessels remain trapped in the Persian Gulf, according to maritime intelligence firm Kpler, and they cannot all exit through the narrow strait at once. Mine clearance alone could take six months, vessels leaving and returning to reload two to three months, and restarting production in some countries another three months, said Amena Bakr, head of Middle East energy insights at Kpler. Iraq, which suffered the largest production shut-ins, may need about a year to fully restore output, according to Alan Gelder, senior vice president at Wood Mackenzie.
The prolonged disruption means crude supply tightness could persist for months, keeping upward pressure on oil prices and inflation. Capital Economics estimates energy flows will reach only 80 percent of prewar levels by September, while Neil Shearing, the firm's group chief economist, said inflation is "set to stay above target in most major economies throughout this year and the first half of next."
Logistics and Insurance Hurdles
Even with a signed deal, ship captains, insurers and owners may take time to deem passage safe. Many warn that mine clearance and a return to internationally recognized transit lanes "are prerequisites for safe navigation," wrote Richard Meade, editor-in-chief of shipping data firm Lloyd's List. Iran had threatened to attack ships using the established mid-strait lanes, and some vessels have slipped out under US guidance through a southern passage along Oman's coast.
The period between the deal's announcement and its signing Friday "gives both sides scope for issuing conflicting statements," said Torbjorn Soltvedt, principal Middle East analyst at Verisk Maplecroft. Iran has demanded the right to collect fees from ships using the strait, a demand that would expose shippers and banks to US sanctions on the Islamic Revolutionary Guard Corps, which the US and EU have designated a terrorist organization.
Production Restart Varies by Country
Saudi Arabia and the United Arab Emirates, which maintained some exports through alternate pipelines bypassing the strait, may be among the quickest to resume production, Gelder said. Iraq faces a much longer road because its fields suffered bigger shut-ins and are more technically challenging to restart.
Countries will not restart production until they see a durably open strait and a ceasefire that lasts more than 30 to 60 days, said Daniel Sternoff, senior fellow at the Center on Global Energy Policy at Columbia University. Claudio Galimberti, chief economist at Rystad Energy, noted that "sentiment has clearly improved. But sentiment is not the same as supply."
The lag in restoring flows carries implications beyond oil markets. Germany's temporary fuel tax cut of 17 euro cents per liter expires June 30, which could push inflation higher even as supply remains constrained, Bundesbank President Joachim Nagel said Monday. Joachim Nagel, the head of Germany's Bundesbank, said in a speech that inflation could rise when government measures aimed at easing the energy shock expire.
This article is for informational purposes only and does not constitute investment advice.
