- Brent crude futures fell more than 5% to below $95 a barrel on news of a US-Iran agreement in principle to reopen the Strait of Hormuz, with some ships already beginning to move toward the strait in anticipation of a deal — though shippers say they need an extended period of calm before sailing normally through it.
- The full economic benefits will take time: global oil stockpiles have already plunged by 250 million barrels over March and April alone, and the world must first stop the bleeding before it can refill depleted strategic and commercial reserves.
- The UAE’s Adnoc CEO estimates that even if the conflict ended immediately, Hormuz flows would take at least four months to reach 80% of prewar levels — with full restoration not before Q1 or Q2 of 2027; Rystad Energy puts the war’s energy infrastructure repair bill at up to $58 billion.
- The EIA forecasts Brent averaging $89 at year-end 2026 and $79 in 2027, still far above the ~$60 level at which the year began — while shipping insurance and freight costs are expected to normalize even more slowly than crude prices as underwriters await proof the strait is physically safe.
What Happened?
News of a US-Iran framework deal under which Iran would reopen the Strait of Hormuz in exchange for an end to the US naval blockade triggered a sharp risk-on move in markets Sunday, with Brent crude futures falling more than 5% and equity futures climbing across Asia and Europe. Vessels stuck in the Persian Gulf began positioning toward the strait in anticipation of an agreement, even as President Trump cautioned that a signed deal would take time. The Strait of Hormuz is the conduit for roughly 20% of the world’s petroleum supply, and its closure has driven the most significant oil supply disruption in modern history — with more than one billion barrels of supply interrupted since the war began.
Why It Matters?
A Hormuz reopening would begin to ease the inflation pressure that has been radiating through the global economy via fuel, transport, manufacturing, and food costs. Lower oil prices would give central banks — including the Federal Reserve — more room to hold rates or consider cuts rather than hikes, which markets have been pricing aggressively. But the relief will not be immediate or complete. Physical damage to energy infrastructure across the region carries a repair bill of up to $58 billion. Global inventory buffers that governments depleted during the crisis — down 250 million barrels in just two months — must be rebuilt. And shipping companies and insurers will demand sustained evidence that the strait is safe before resuming normal commercial operations, meaning freight and insurance premiums stay elevated well after crude prices ease.
What’s Next?
The pace of oil market normalization will depend on whether the current deal framework translates into a durable settlement or merely another ceasefire extension. Capital Economics says oil prices will only start trending materially lower when the supply-demand balance “materially improves, which is likely to be well into 2027.” Near-term, watch whether mines are cleared, Iranian attacks fully cease, and a governance framework for the strait is established — the three conditions shippers are requiring before treating Gulf voyages as normal. The EIA’s base case of $89 Brent by year-end assumes Hormuz shipping traffic picks up in June; any delay to the deal or physical reopening pushes that timeline out and keeps inflation pressure elevated through the year.
Source: The Wall Street Journal
