Oil prices unlikely to ease quickly despite US-Iran ceasefire

Despite Sunday’s announcement of a ceasefire agreement between the United States and Iran and plans to reopen the Strait of Hormuz, experts say relief from high oil and gasoline prices and ongoing energy supply disruptions is unlikely to come quickly, Associated Press reported.

Analysts said it could take months before global energy supplies return to normal levels, as the process of restarting production, transporting crude and refining fuel is both complex and time-consuming. Concerns over the safety of navigating the Strait of Hormuz are also expected to slow the recovery.

Oil tankers carrying crude have remained stranded in the Persian Gulf for more than three months after the conflict disrupted one of the world’s most important shipping routes, which typically handles around 20% of global oil and fuel supplies.

“It’s going to take time for people to feel comfortable and for insurance to be in place, particularly to get people on the ground to restart some of these assets,” Daniel Evans, global head of fuels and refining research at S&P Global Energy, told AP.

Evans noted that vessels currently trapped in the region would first need to exit the strait before new tankers could enter for loading. Operators would require confidence that there is a sufficient window of safety to move ships in and out without disruption.

He added that the oil supply chain itself moves slowly, with crude shipments taking weeks or months to reach distant markets, undergo refining and eventually reach consumers. Some Middle Eastern producers had also halted output after exhausting storage capacity, and restarting those operations cannot happen overnight.

According to Alan Gelder, senior vice president of refining, chemicals and oil markets at Wood Mackenzie, countries such as Saudi Arabia and the United Arab Emirates, which have alternative export routes and pipelines, may be able to resume production relatively quickly.

However, producers such as Iraq could face a much longer recovery period due to larger production shutdowns and more complex oilfields.

“They’ve had a much bigger shut-in, their fields are more difficult … it may well take about a year before they get back,” Gelder said, adding that investment in the energy sector had stalled during the closure of the strait and would also take time to restart.

Daniel Sternoff, a senior fellow at Columbia University’s Center on Global Energy Policy, said oil producers are unlikely to resume full production until they are convinced that the ceasefire is durable and the Strait of Hormuz will remain open in the long term.

“We don’t know what open means or what the speed of evacuation of trapped material is going to be,” Sternoff said.