Will shipping in the strait of Hormuz – and oil prices – return to normal? | Strait of Hormuz

How many ships are left in the Gulf?

According to the UN, an estimated 2,000 ships carrying nearly 20,000 sailors have been stranded in the Gulf since the start of the conflict. These include oil and gas tankers, bulk carriers and cargo ships, as well as six tourist cruise ships.

Many of those unable to cross the strait to continue their journey remained anchored for almost six weeks; In some cases food and water supplies for the crew were running low.

When will ship passages begin through the Strait of Hormuz?

There was no immediate increase in the number of ships passing through the strait in the hours after the ceasefire declaration.

Some traffic has flowed in recent weeks, only in the single digits most days, but this represents a small percentage of the 140 ships on average each day before the war.

Shipping analysts and ship owners have warned that even a temporary ceasefire does not provide a sufficient guarantee that the passage is safe, especially since Iran’s foreign minister has stated that the transit will be under Iranian military management.

What needs to happen for more ships to start using the strait?

There are many questions about whether this is safe for ship owners and captains.

Iran has stated that it intends to continue operating the traffic control system it has implemented in the strait in recent weeks. This included approving “non-hostile ships” determined to have no ties to the United States or Israel, and required the sharing of large amounts of information regarding the ship owner, operator, cargo and previous voyages.

As part of the clearing process described by analysts as “fairly simple”, Iranian officials on Larak Island in the north of the strait used binoculars to check the names of passing ships and gave the go-ahead to proceed.

Tehran has sought to reroute ships to a corridor further north, closer to the coastline and away from traditional shipping lanes, to allow visual verification. But this new route puts even more restrictions on the already congested waterway and could make it difficult for large numbers of ships to pass.

A successful ceasefire could also allow Iran and Oman to charge up to $2 million (£1.5 million) for a ship to pass through the strait. This requirement has been labeled “Tehran’s toll booth” by shipping analysts at Lloyd’s List. This would allow Iran to retain control, but it is unclear whether all shipowners will be willing to pay.

Fully loaded ships are expected to be among the first to leave, rather than ships that are empty and cannot be reloaded.

Shipping analysts predict that operators will gain confidence if the ship, owned by a major European company, makes the passage safely. However, they warn that the decision of empty ships to enter the strait to load at regional ports is a different matter and it is unclear when this will start.

What does this mean for global energy supply?

Energy markets have fallen sharply on hopes that millions of barrels of crude oil and gas trapped in the Gulf could help alleviate a crisis “more serious” than the energy boom points of 1973, 1979 and 2022 combined, according to the International Energy Agency.

However, this disruption was exacerbated by the forced halt of oil and natural gas production across the Gulf as storage facilities reached capacity. Additionally, many important energy production facilities were damaged due to drone attacks.

Experts say it could take months or years to fully restore the Gulf’s energy production. Qatar said serious damage to its main liquefied natural gas (LNG) production hub following Iran’s attack caused its capacity to decrease by 17%. Officials estimated repairs could take three to five years.

International oil consultancy Wood Mackenzie assumes that if Qatar begins restarting its remaining LNG capacity next month, it will take until the end of August for its undamaged capacity to return to service. “However, it is unclear whether QatarEnergy will consider doing this during the ceasefire,” said Tom Marzec-Manser, a gas analyst at the company.

Gulf refineries, which supply more than half of Europe’s jet fuel, were also damaged and may take months to return to normal.

Willie Walsh, chief executive of Iata, which represents the airline industry, told reporters in Singapore that even if the Strait of Hormuz remained open “given the disruption to refining capacity in the Middle East, it would still take months for supply to get back to where it needs to be”.

So can we expect energy market prices to fall?

But if the ceasefire holds, even then it won’t last very long, and perhaps not for very long. Oil and gas markets reacted comfortably to initial reports of the ceasefire, prompting a sharp decline in global wholesale prices. However, analysts predict that prices may start to rise again as the contraction in global energy supply intensifies in May and June.

The international crude oil benchmark opened just below $95 (£71) a barrel on Wednesday morning; this was down from about $110 per barrel the day before. European gas prices, meanwhile, opened below €43 (£37) per MWh, down almost 20%. The fact that these prices are still well above pre-crisis levels means that costs are increasing in the global economy. There are particular concerns about jet fuel prices, which normally move in tandem with oil prices but have more than doubled since the Iran conflict.

Investors are expected to price in an ongoing “geopolitical risk premium” to reflect uncertainty about whether the ceasefire will hold or conflict will continue. This will keep energy market prices “significantly higher than before the conflict,” according to Tamas Varga, analyst at PVM Oil, part of the Icap group. “As a result, a return to sub-$70 levels is extremely unlikely, at least within the next year or two,” he said.

When will the Gulf’s oil and natural gas exports return to normal?

Maybe never. Even if the Strait remains open and production and refining capacity returns to normal, many countries will rethink their approach to energy due to the crisis.

In Asia in particular, the Gulf crisis has exposed many countries to the risk of becoming overly dependent on a single region for energy supplies; many are likely to diversify their sources in the future.

For those relying on the Gulf for future energy supplies, there could be higher costs if Iran charges transit fees to tankers in the long term and a higher risk premium to be paid to tanker operators for using this route. This means Gulf imports could be reduced in favor of American oil and gas producers, for example.

There will also likely be greater interest in nuclear power and renewable energy sources, which, combined with electric transport and the transition to greener industry, could help countries reduce their dependence on fossil fuels altogether.

Shipping analysts warn it may take a long time for shipping companies to regain the confidence to return to dangerous routes. Few commercial shipping operators had returned to the Red Sea by January, a year after Yemen’s Houthi rebels said they had stopped targeting ships. They opted for the longer and more expensive but more predictable route around the Cape of Good Hope at the southern tip of Africa.