Strait of Hormuz Traffic: Steps Needed for Pre-War Levels Return

A preliminary Memorandum of Understanding (MOU) signed between the United States and Iran on June 17, 2026, has brought an end to a 110-day conflict, paving the way for the reopening of the Strait of Hormuz, a critical chokepoint for global energy markets. The agreement, signed by U.S. President Donald Trump and Iranian counterpart Masoud Pezeshkian, mandates an immediate and permanent halt to fighting. Concurrently, the U.S. naval blockade on Iran has been lifted, and sanctions waivers for Iranian crude oil exports and associated banking services are effective immediately.

Under the terms of the agreement, commercial vessels will enjoy toll-free passage through the Strait of Hormuz for at least 60 days, with the goal of achieving full restoration of traffic within 30 days. However, Iran's chief negotiator, Mohammad Bagher Ghalibaf, has stated that Iran intends to levy transit fees after the 60-day toll-free period and that the Strait will not revert to pre-war conditions. The closure of the Strait had brought to a near standstill a route that previously saw an average of 120 to 140 ships daily, transporting approximately 20 million barrels of oil. During the conflict, traffic plummeted by over 90%.

This development holds the potential to bring significant relief, particularly to global energy markets and the maritime shipping industry. While a noticeable increase in vessel traffic through the Strait of Hormuz has been observed since the agreement's signing, a full return to pre-war levels is anticipated to be gradual. Analysts caution that complete normalization will take time due to factors such as the risk of mines in the Strait, persistently high insurance premiums, and ongoing security concerns among shipowners.

During the conflict, Gulf states like Saudi Arabia, the UAE, and Iraq significantly expanded alternative oil export routes bypassing the Strait of Hormuz. This strategic shift has led financial institutions, including Goldman Sachs, to project that Strait traffic may only recover to about 70% of its pre-war levels. The increased capacity of these alternative routes could redefine the Strait's future importance and have long-term implications for global supply chains.

The next 60 days represent a critical window for the U.S. and Iran to negotiate a comprehensive final agreement. These negotiations will encompass sensitive issues such as Iran's nuclear program and the broader lifting of sanctions. However, unresolved matters, including Israel's military presence in Lebanon and Iran's stance on future transit tolls, contribute to the fragility of a final deal. Market participants will continue to closely monitor the progress of these negotiations and the assurances of security in the Strait of Hormuz.