Energy markets face months of disruption despite ceasefire
Iran has agreed to allow conditional passage through the Strait of Hormuz under a two-week ceasefire with the US.The specifics of the agreement remain unclear and the extent of its influence on oil traffic through the region is yet to be determined.In a post to Truth Social, US President Donald Trump said Iran had agreed to a complete, immediate and safe reopening of the strait. However, Iran Foreign Affairs Minister Abbas Araghchi reiterated that the removal of the blockade would be conditional."For a period of two weeks, safe passage through the Strait of Hormuz will be possible via a coordination with Iran's armed forces and with due consideration of technical limitations,” he said.Shipping remained limited in the first 24 hours following the ceasefire, with only a small number of vessels transiting the Strait, according to shipping monitors.Shipping through the strait has been severely disrupted since the conflict began in late February.According to the International Maritime Organization (IMO), prior to the conflict, about 150 vessels passed through the waterway every day — that number has since dwindled to less than five a day.The IMO has estimated that there are about 2000 ships, including oil and gas tankers, currently stranded in the Persian Gulf due to the blockade.Though the reopening of the critical chokepoint will provide some much-needed relief to the global energy market, the disruption to global supply chains has already been severe. Wood Mackenzie says recovery is likely to be a months-long process even with the ceasefire in place.The 11 million barrels a day of upstream production currently shut-in across the Middle East can only be restored when export logistics normalise, which is extremely unlikely to happen overnight, according to Wood Mackenzie.Wood Mackenzie refining, chemicals and oil markets vice president Alan Gelder says a workable system of transit and shipowner confidence in the security of the transiting vessels is essential for traffic flows to resume.“There also needs to be confidence in viability of transit during and beyond the current two-week ceasefire,” he said.Wood Mackenzie says laden vessels have every incentive to transit the Strait of Hormuz as quickly as insurance and security assurances allow, but it is unclear what rate of transits can be achieved safely."Ballasting vessels are unlikely to enter via the Strait of Hormuz any sooner than a just in time logistics basis, at risk of becoming trapped if hostilities resume," Mr Gelder said."Onshore storage drawdown remains constrained by over-the-jetty load rates, onshore inventories cannot be instantaneously transferred to ballasting vessels."As export volumes ramp up, storage ullage will allow upstream production and refining operations to resume. However, the level of storage varies from less than two weeks for Iraq and Kuwait to about a month for Saudi Arabia and the UAE, according to Wood Mackenzie.Wood Mackenzie upstream analysis head Fraser McKay says the initial recovery from major fields will be more than sufficient to meet the ramp-up of export volumes, but shipping logistics will remain the constraint on upstream recovery for several weeks."Thereafter, as those constraints begin to ease, the constraints on supply will shift to the upstream production and this will expose the different challenges each country faces,” he said.“More than half of most field's previous supply levels could be restored before shipping constraints ease.”Even unconstrained, it will take countries like Iraq a long time to reach prior production levels — as long as six to nine months — given the complexities introduced by both reservoir management and resource limitations, according to Wood Mackenzie.Wood Mackenzie Europe gas and LNG analyst Tom Marzec-Manser says the ceasefire means it may be possible for the 14 trapped laden LNG cargoes in the Gulf to exit the Strait of Hormuz and provide some relief to the global gas market.“But for there to be a real structural change in supply the Ras Laffan site in Qatar would need to restart its 12 operable trains,” he said.“It is unclear if QatarEnergy would consider doing this during a ceasefire, however."Wood Mackenzie estimated that if QatarEnergy began restarting Ras Laffan at the start of May, it would take until the end of August for the 12 trains to return to full service.Though operational outlooks are uncertain, outcomes depend on whether the ceasefire holds. Representatives from the US and Iran are set to meet in Pakistan later this week to undergo peace talks.
