Jun 16th 2026|5 min read
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IT IS A moment of relief for energy markets. A memorandum of understanding to end the war between America and Iran calls for lifting the naval blockade of Iranian ports and reopening the Strait of Hormuz within 30 days. While Donald Trump and his Iranian counterparts work out the details of a peace deal, the world can look forward to recovering 15-20% of its usual supply of oil and liquefied natural gas.
It may all still be derailed by skirmishes or disagreements over the fine-print. Yet both sides have incentives to stop fighting. Iran’s wrecked economy needs oil exports to resume; Mr Trump wants cheaper petrol ahead of the midterms in November. Markets are pricing in peace. Brent crude, the global benchmark, has slid below $80 a barrel, from well over $110 in May. Some analysts expect an oil glut next year, as supply recovers faster than demand.
The optimists may be getting ahead of themselves—especially in the short term. Wary buyers are not yet placing large orders for Gulf crude, notes Tom Reed of Argus Media, a price-reporting agency. Even if the deal holds, tankers must start returning to the Gulf, not just leaving it, production must restart and refining ramp up worldwide—all of which will take time.
Chart: The Economist
Before any of that, the strait must first be cleared of mines. A map from the IRGC, Iran’s elite fighting force, seen by The Economist, suggests they have been laid precisely where ships usually sail. Alternative lanes, along the Iranian and Omani coasts, are dangerous and narrow. Few ships brave them (see chart 1). America has mine-clearing vessels in the region, and Britain and France have offered to help what is left of Iran’s navy.
Intrepid vessels will attempt passage before then. One Greek shipowner says he will do so shortly. A few insurers are cutting top-up premiums for Gulf voyages by 50% for some clients, says Argus. Mercuria, a Swiss trader; a Vietnamese refiner; and a Chinese importer are looking for vessels to lift Gulf oil in the next week. But most shipowners may wait for mines to be fished out, which could take six weeks or more. The 118 laden tankers now idling in the Gulf would normally need 10-15 days to exit, reckons Kpler, a ship-tracker. With demining in process this will take longer.
As tankers return, Gulf producers will start pumping. They have reported no severe damage to fields. Most have enough spare storage to raise output before maritime bottlenecks are fully resolved. Large fields with lighter crude, such as Saudi and Emirati ones, should reach pre-war production within three months, says Frédéric Lasserre of Gunvor, a trader.
Chart: The Economist
Most analysts expect overall Gulf output to reach 30-50% of February levels by mid-July, 60-70% by mid-September and 80-90% by the end of the year. In this scenario Brent would edge towards $75 a barrel. Prices in the Gulf and outside it, which diverged when the strait was first shut, are converging again (see chart 2).
Still, the pre-war world of abundant oil is a long way off. Even if outbound vessels start crossing the strait, inbound ones may not return in full for four or five months, predicts BRS, a ship broker. The 50 or so of the biggest crude carriers waiting near the Gulf can load only about two weeks’ worth of pre-war Middle Eastern exports. Many ships that migrated to safe and lucrative Atlantic routes must complete their voyages and will wait for Gulf freight rates to rise before heading back. Insurers will lower premiums only when freedom of navigation is guaranteed and big operators have been sailing Hormuz for weeks, says Ellis Morley of Howden, an insurance broker.
Although Iran has promised no “tolls” for 60 days, it may charge “fees” instead. In April its central bank confirmed receipt of the first revenue from the new Persian Gulf Strait Authority (PGSA). A bill allocating 30% of the proceeds to Iran’s armed forces, including the IRGC, is in parliament. Iran’s recent communications suggest it views managed traffic as the new normal and unrestricted passage as the aberration, says someone familiar with the matter. Yet unless the peace deal lifts American sanctions on the PGSA and the IRGC, anyone paying Iran risks being blacklisted.
Supply will, then, stay constrained even after a real truce is reached. On top of that, traders expect America to cancel its next release from emergency stocks, depriving the world of 1m b/d in exports. Demand, which normally rises in the summer, may return faster on news of the war’s end. Morgan Stanley anticipates an oil deficit of 3.4m b/d in the third quarter, draining global stocks at a rate of 2.1m b/d and keeping prices high. The bank forecasts “dated Brent” (oil to be delivered in the next few weeks) will average $90 between July and September and $80 in the three months after. That is $20 more than it predicted in February for the same periods.
The prices of refined products are even harder to predict. Asian refiners must wait for Gulf supplies to arrive. In the Gulf itself, Iranian strikes have damaged big refineries. Further delays to product shipments could drain stocks in Africa (starved of petrol), Asia (a big importer of naphtha, a plastics feedstock, and LPG, a cooking fuel) and Europe (reliant on Gulf jet fuel and diesel). American refiners may swing from producing diesel and jet fuel for export back to petrol for the home market—but domestic stocks are so low that prices at the pump may stay high, or even rise.
Chart: The Economist
On June 17th the International Energy Agency, an official forecaster, said it was expecting an oil glut next year, as the Middle East starts pumping more and newly active producers elsewhere do not stop. But global oil stocks may hit record lows before then (see chart 3). If governments decide to refill their strategic reserves—or, for those without such stocks, to build them—this may add 2m b/d to global demand in 2027. China, which has cut crude imports by 5m b/d—roughly 5% of global supply—may be first in line.
And even if supply does start to outstrip demand, the risk that Iran reasserts control over Hormuz—or that the fighting resumes—may add a lasting premium of up to $10 a barrel to world oil prices, reckons Rystad Energy, a consultancy. For energy markets, the end of the war does not mean the end of uncertainty. ■
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