After the announcement of an agreement between the United States and Iran to end the war – an agreement expected to be signed on Friday in Switzerland – international oil prices dropped to their lowest levels since March 10. Brent, the North Sea-based contract, fell by 4 percent to $83.6 per barrel; the West Texas Intermediate, the US benchmark contract, dropped nearly 5 percent to $80.7 per barrel.
WHAT WE KNOW ABOUT THE AGREEMENT, AND WHAT WE DON’T
US President Donald Trump also said that the Strait of Hormuz – the world’s most important waterway for fossil fuel trade – will be fully reopened and “toll-free”; the US blockade of Iranian ports will also be lifted.
Many points of the agreement, however, remain unclear and the version presented by Tehran is less enthusiastic than that of the White House: the actual agreement will only be reached after a sixty-day negotiation period.
RETURN TO NORMALITY? NOT EXACTLY
Even if the agreement is signed, military operations cease, and maritime traffic in the Strait of Hormuz is restored, it will still take time before the situation in the Persian Gulf – and in the oil market – returns to normal. Iran has damaged several energy facilities in the region, such as the huge Qatari complex of Ras Laffan, and it is unclear how quickly hydrocarbon-producing countries will be able to restore output and resume exports.
HOW MUCH OIL IS NEEDED TO BRING THE MARKET BACK TO THE PRE-WAR PERIOD?
On the other hand, the Commonwealth Bank of Australia – one of the country’s largest – believes that “it is sufficient for oil flow through the Strait of Hormuz to reach 60-70 percent of pre-war levels to bring oil markets back to the expectations of oversupply” formulated before the war with Iran began on February 28.
Also the OPEC, the organization that brings together some of the main oil-exporting countries, feared an oversupply in the market and long resisted this scenario by reducing production to support crude prices.
DOUBTS IN THE STRAIT OF HORMUZ
After the announcement of the agreement between the United States and Iran, the Indian oil company Petronet sent an LNG tanker through the Strait of Hormuz, which had remained nearby after receiving a cargo from Ras Laffan on March 1-2; it is reportedly headed to India.
It is estimated that at least one hundred and fifty-five tankers are stationary in the Persian Gulf, but some analyses count as many as five hundred vessels. Today – at least for the moment – the only ship to have crossed the strait is the one belonging to Petronet: other shipowners prefer to have more certainty before departing, also considering the presence of naval mines in the area.
It will take time to clear the maritime traffic accumulated in the Strait of Hormuz during these more than three months of war, also because the average transit time through the waterway is about eight hours. Under normal conditions, about one hundred and thirty-five vessels pass through the Strait of Hormuz daily.
