Strait of Hormuz Normalization Could Take Weeks, Market Effects to Linger

Commercial vessel traffic has begun to resume in the Strait of Hormuz, a critical chokepoint for global energy trade, following an interim peace agreement between the United States and Iran. However, a full return to pre-war shipping levels could take weeks, with knock-on effects on global supply chains and markets expected to continue for months. This situation has the potential to create prolonged uncertainty regarding energy prices and logistics costs.

The disruptions in the Strait began with the US and Israel's aerial campaign against Iran, followed by Iran's retaliation, threats to commercial vessels, mine laying, and a US naval blockade. During this period, daily vessel traffic through the Strait of Hormuz plummeted from around 130 ships to approximately 10, representing a contraction of over 90%. Under the interim Memorandum of Understanding (Islamabad MoU) brokered by Pakistan and Qatar, Iran has pledged to restore maritime traffic in the Strait to pre-conflict levels within 30 days, while the US has agreed to lift its naval blockade.

In the wake of the agreement, some commercial vessels, notably Saudi Arabian oil tankers and Qatari LNG carriers, have recommenced transits through the Strait. Nevertheless, experts anticipate that the physical reopening of the Strait and the clearance of accumulated vessel backlogs could take 2 to 4 weeks. Normalization of shipping schedules may require 2 to 4 months, while broader supply chain and commercial stabilization could extend to 4 to 6 months or more. Operational challenges, such as mine clearance and the repair of damaged infrastructure, could further prolong the recovery process.

During the period of disruption, Brent crude oil prices surged past $100 per barrel, peaking at $126, causing a significant shock to global energy markets. While oil prices have shown declines with the news of reopening, elevated shipping and insurance costs are sustaining inflationary pressures. Asian markets, in particular, were heavily impacted due to their high reliance on oil and liquefied natural gas (LNG) supplies transiting the Strait of Hormuz. Although countries like Saudi Arabia and the United Arab Emirates have utilized alternative pipelines, these routes have proven insufficient to fully compensate for the Strait's capacity.

The International Energy Agency (IEA) forecasts a gradual recovery in the Strait and anticipates a significant surplus in the global oil market by 2027. However, the shipping and insurance industries are awaiting greater clarity on issues such as mine clearance, traffic management, and long-term security arrangements. Persistently high insurance premiums may lead shipowners to remain hesitant about returning to the region. These factors will likely delay the full normalization of global trade flows and maintain a risk premium in energy markets.

Analysts and market observers emphasize that a complete and secure operational status for the Strait of Hormuz will take time. Experts like Daniel Sternoff, Senior Fellow at the Center on Global Energy Policy at Columbia University, highlight that countries will seek assurances of a durably open Strait and a lasting ceasefire before fully ramping up production. This outlook suggests a cautious optimism for global energy supply security and price stability in the near future. Furthermore, warnings persist that geopolitical tensions in the Middle East could lead to a lasting embedding of risk premiums in energy prices and insurance costs over the long term.