The United States and Iran have tentatively agreed to reopen the Strait of Hormuz, though specifics remain elusive. This announcement raises questions about how quickly shipping can return to normal and when oil prices might decrease.
Carl Weinberg, chief economist at High Frequency Economics, remarked, “Prices are not going to drop quickly.” Currently, about 1,500 to 2,000 ships are stuck in the Persian Gulf owing to the conflict that began on February 28.
Prior to the conflict, nearly 20% of global oil and gas flowed through the strait. The closure has impacted these supplies significantly. Clarity on Iran’s control over the strait remains lacking, particularly regarding whether Iran can impose passage fees.
Complicating matters, an advisor to Iran’s supreme leader emphasized Iran’s “legal right” to manage the strait, suggesting possible leveraging for financial gains. Even if the strait is soon officially reopened, several factors remain in restoring normalcy, chiefly the perceived security and stability to encourage shippers to transit the waterway.