A driver checks the price of gas before filling up at a gas station in Lincolnshire, Illinois. (Nam Y. Huh/AP)
key takeaways:
- Oil prices fell early on June 15 due to the agreement to end the Iran war and reopen the Strait of Hormuz, although they remain above pre-war levels.
- Energy experts say about 20% of global oil supply has been disrupted due to slow shipping, security concerns and halted production and will take months to recover.
- Companies must restore security, move stranded tankers and restart wells, potentially taking up to a year for some producers to return to full production.
New York – Despite the agreement announced June 14 to end the Iran war and open the Strait of Hormuz, high oil and gasoline prices and energy supply problems will not be solved overnight.
According to energy experts, it will take several months for energy companies to resume operations to meet world demand. He said the slow pace of the process of shipping and refining crude oil and doubts about the safety of travel through the strait meant the impact would not be seen immediately.
Ships loaded with crude oil have been stuck in the Persian Gulf for more than three months, unable to safely travel through the waterway through which about a fifth of the world’s oil and gasoline supplies typically traveled before the war began.
“It will take time for people to feel comfortable and for insurance to be in place… especially to get people on the ground to restart some of these assets,” said Daniel Evans, global head of fuels and refining research at S&P Global Energy.
Nevertheless, oil prices fell early on June 15 after the deal was announced.
Brent crude, the international benchmark, was down $3.45 at $83.89 a barrel. US benchmark crude oil fell $4.03 to $80.85 per barrel.
An Iran-flagged tugboat passes a ship anchored in the Strait of Hormuz on May 4. (Amirhossein Khorgui/AFP/Getty Images/Bloomberg)
Those prices are still well above the roughly $70 a barrel where oil was trading before the war started.
As high prices ease, stranded ships will be forced out of the strait and new tankers will then have to come in to load, Evans said.
“To bring a ship in, you have to be confident that you have a big enough window of safety to get it in, load and take it out,” he said.
He told that oil tankers also move slowly. It takes months to travel across the strait to distant countries, to transport crude oil to a refinery for processing and then to reach its final destination.
Additionally, some producers in the Middle East stop extracting oil from the ground when they run out of storage space, known as a shut-in. Restarting those operations could be a slow process.
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Countries like Saudi Arabia and the United Arab Emirates, which have alternative pipelines or routes other than the Strait of Hormuz to deliver oil, may be the quickest to restart production, said Alan Gelder, senior vice president of refining, chemicals and oil markets at analytics firm Wood Mackenzie.
“But places like Iraq may be more challenged because they have been locked down so extensively, their areas are more difficult… it may take them about a year to come back,” he said.
Investments in the energy system, which could take years to yield results, will come to a halt after the closure of the strait, Gelder said. Therefore, it will take time for this capital to restart.
Daniel Sternoff, senior fellow at the Center on Global Energy Policy at Columbia University, said countries that shut down oil production may not want to restart it unless they know there is a stable, sustainable truce and that the ceasefire will last more than 30 or 60 days.
“We don’t know what open means or what the pace of removing the trapped material will be,” he said.
