US-Iran Agreement Battles Oil Prices, Analyst: Time Needed for Hormuz Navigation and Oil Production Recovery

The United States and Iran have reached a temporary peace agreement, with the hope of reopening the Strait of Hormuz, causing international oil prices to plummet. However, analysts warn that it may take several months for the oil market to return to normal. As of the time of writing, Brent crude oil futures fell 4.43% to $83.46 per barrel, while WTI crude oil futures fell 5.11% to $80.54 per barrel. U.S. President Trump announced on social media that he has authorized the "free opening" of the Strait of Hormuz and an end to the blockade against the Islamic Republic of Iran. After both parties officially sign the agreement on June 19, the Strait of Hormuz will reopen on the same day. Trump stated, "Ships of the world, start your engines. Let oil flow! Iran's Deputy Foreign Minister confirmed that the Iran-US understanding memorandum has been finalized and the official signing ceremony of the related texts will be held in Switzerland on the 19th. Since the end of February, when the U.S. and Iran launched attacks against each other, the global energy market has been deeply affected by this war. In response, Iran targeted the entire Persian Gulf region and closed the Strait of Hormuz. During peacetime, the strait accounts for about one-fifth of global crude oil transportation. Despite Trump's call to "let oil flow," traders and analysts are more cautious, emphasizing the lack of specific details in the agreement document and the obstacles faced by the shipping industry in resuming waterway transportation, as well as the need for more time for oil fields to resume production. Analysts point out that the reopening of the Strait of Hormuz still faces many obstacles at this stage, including clearing mines and Iran's explicit intention to strengthen control over transiting vessels. Chris Weston, Director of Research at Pepperstone Group Ltd., said, "We still need to clarify the actual impact of this agreement. Even if the relevant channels are scheduled to open on Friday, there may still be hidden dangers of underwater mines in the area, and insurance companies may charge high premiums as a result." There are signs of a shift in the market landscape: the near-month price spread of Brent crude has narrowed to less than $1 per barrel, although this spot premium mode is still in a bullish trend, it has decreased from the more than $12 spread in April. Traders are closely monitoring signs of the restart of Persian Gulf oil fields, which were forced to close during the conflict. Oil producers warn that due to technical and geological challenges as well as infrastructure damage, it may take several months to fully restore supply. Additionally, the record pace of consumption of oil and refined oil inventories, strategic reserves, and commercial inventories urgently need replenishment. Weston said, "The structural gap in supply and demand created by this conflict will take time to fill." Haris Khurshid, Chief Investment Officer at Karobaar Capital LP, said, "The market often sees reopening as a problem that can be solved by flipping a switch, but in reality, it is more of a process. Physical circulation can recover quickly, but trust usually doesn't." He also added that reopening the strait and restoring normal trade flow are two different things, pointing out that many buyers have spent months seeking alternative routes, suppliers, and inventories and may not immediately return once the strait reopens. The temporary agreement reached by the U.S. and Iran paves the way for the upcoming 60-day negotiations on the Iran nuclear issue. While Trump celebrated this breakthrough, he warned that if a consensus is not reached on the nuclear issue, he may resume military strikes.