As Iran approached its 100th anniversary on Sunday, a comforting but flawed notion took hold.
Many policymakers, businesses and investors believe that a rapid reopening of the Strait of Hormuz would lead to a rapid reduction in energy prices once stranded oil and gas tankers can finally leave the Gulf.
Yet top oil executives, shipping sector leaders and economists are predicting the opposite. They should be mindful that peace will not immediately return energy markets and global supply chains back to normal. He says that its consequences can last for many months and even years.
Amin Nasser, CEO of Saudi Aramco, the Gulf’s biggest oil supplier, told investors last month that even if Hormuz reopened immediately, “it will take several months for the market to rebalance.” Nasser said that if the shutdown is continued for a few more weeks, “normalization will last until 2027.”
Despite facing a fragile ceasefire and repeated setbacks in peace talks, traffic through the narrow waterway between Iran and Oman remains at a fraction of normal levels.
Oil prices remain about 30% above pre-war levels, keeping gasoline, diesel and fertilizer prices high. These extra costs are driving global inflation, disrupting supply chains and driving up food prices around the world as fertilizer – often made from natural gas – becomes more expensive for farmers.
‘Stop-start’ Hormuz reopening predicted
Experts say once a peace deal is reached, shipping companies will have to gain enough confidence to send their workers back to the Gulf region. This may require an observation period of 30 to 45 days. Security arrangements, including international naval patrols, would also be required to protect ships from any sporadic attacks.
Chevron CEO Mike Wirth told Bloomberg on Friday that shipowners and crews remain on high alert as attacks on shipping in Hormuz continue, with several ships attacked just last week. He said reopening Hormuz would likely be a “stops and starts” process.
“It only takes one attack on a ship to take out most of the ships,” Neil Crosby, head of research at market intelligence firm Sparta Commodities, told DW. He said shipping companies had replaced the Gulf’s revenues with other voyages, so “why bother taking the risk?”
Lloyd’s of London, the world’s leading marine insurance market, has seen war-risk premiums for the Hormuz transit rise dramatically and remain high even after the ceasefire, which took effect on April 8.
Once Hormuz is secured, the many tankers already stuck inside the Gulf will also need to get out safely, while new ships sail from distant ports – some halfway around the world – to load new cargo.
“The process can take eight weeks, maybe longer, depending on how long each step takes,” Crosby warned.
Facilities damaged by safety testing delays
Physical damage to Gulf energy infrastructure would cause another major delay. Dozens of oil fields, pipelines, refineries and liquefied natural gas (LNG) plants have been affected, with repair costs estimated at between $25 billion and $58 billion in April, according to consulting firm Rystad Energy.
Qatar’s huge Ras Laffan complex was worst hit, where Iranian strikes destroyed 17% of the country’s LNG capacity. Qatari officials have warned that complete repairs there could take three to five years.
It could take years for LNG producers to resolve contractual disputes over missed deliveries, with the backlog potentially impacting cargo schedules through 2027, according to lawyers who spoke to Platts at S&P Global, a leading energy and commodity price benchmark provider.
This includes disputed “force majeure” claims – legal declarations that war has made it impossible to deliver the LNG as promised.
Other energy facilities face weeks or months of downtime due to the need for thorough safety checks, complications from long production stoppages, and replacement of parts that were already in short supply before the war.
Gulf sites offline since March have built up pressure, debris and potential erosion, requiring close inspection and careful restart to avoid accidents.
Energy shortage has increased due to depletion of buffers
Crosby pointed to an “inventory problem” that could emerge by the summer, noting how other parts of the global oil market are providing temporary relief from the lack of supply from the Gulf.
Since the war began, the United States has increased oil production by record amounts, while China has cut its crude oil imports by 3.5 million barrels per day – relying more on strategic reserves. IEA members have also withdrawn money from their oil reserves.
However, these measures cannot last. US oil stockpiles are set to reach dangerously low levels over the next few months, while China will soon need to resume imports, competing with the rest of the world for limited supply.
The head of the International Energy Agency, Fatih Birol, warned last month that a glut of oil before the war helped absorb the initial shock, but declining stocks could push the oil market into the “red zone” in July or August.
“once they [oil stocks] “Start the drought, the only solution is higher prices because only with higher prices can you really start to destroy demand,” Crosby told DW.
He hinted at a possible doubling of prices and warned that this path would lead to a global recession.
Edited by: Andreas Becker