The provisional accord aimed at concluding the conflict in Iran and reopening the Strait of Hormuz may positively influence the global economy. However, despite a drop in oil prices on Monday, many uncertainties remain about the timeline and safe resumption of energy shipments through this critical passage.
Previously, the strait facilitated the transport of one-fifth of the world’s crude oil. Now, significant time will be needed to clear the hundreds of vessels stuck in the Persian Gulf. Oil-producing nations that reduced their output will also require time to restart operations.
Analysts suggest ship captains may take extra precautions to ensure safe passage, with concerns that threats from Iran have not fully subsided. The return of oil prices, inflation, and energy flows to pre-war levels is not expected for several weeks or even months, assuming the deal, anticipated to be signed on Friday, proves sustainable.
When Will Oil Flow Again?
Even with the complete reopening of the strait, time is needed for ships to load and embark on journeys, mainly to Asian countries such as Japan. A round trip might take 45 to 50 days. Ship operators, insurers, and owners may cautiously consider the volatile situation before proceeding.
“Operationally, the sector is not rushing back,” stated Richard Meade, editor-in-chief at Lloyd’s List.
Currently, vessels exit slowly through a verification channel managed by Iran in the north, while others navigate covertly through the southern route along Oman’s coast.
According to Kpler, a maritime intelligence firm, clearing mines might take six months. Departing vessels will require two to three months, and production levels could take three more months to reach pre-war status.
Defining an “Open” Strait
The agreement’s clarity remains questioned, particularly regarding tolls. Iran insists on charging ships passing through, conflicting with statements from former President Trump on fee-free passage.
This uncertainty fuels contrasting remarks from both sides about traffic regulations and toll demands, as noted by Torbjorn Soltvedt, a senior analyst at Verisk Maplecroft.
Shipping companies face dilemmas over toll payments, given the designation of Iran’s Revolutionary Guard as a terrorist organization by the U.S. and Europe. Legal experts argue that allowing Iran control could breach international maritime laws under the United Nations Convention on the Law of the Sea.
Recovery for Oil Producers
Middle Eastern producers halted oil extraction due to storage limitations. Resuming operations is a gradual process.
Saudi Arabia and the UAE, with alternative export routes, might restart production more swiftly. Iraq faces challenges, having halted operations for longer periods.
Experts like Daniel Sternoff from Columbia University emphasize cautious resumption until sustained strait reopening and a long-lasting ceasefire are assured.
Inflation Continues to Challenge Economies
Even if the strait reopens, quick inflation relief remains unlikely. According to Neil Shearing of Capital Economics, inflation will remain above target in major economies.
Joachim Nagel of Germany’s Bundesbank highlighted that inflation may rise following the expiration of temporary governmental measures.
As time progresses, oil supply normalization will require several months.