Shippers in Asia and Europe remain cautious about resuming normal transit through the Strait of Hormuz, despite a framework deal reached between the U.S. and Iran to reopen the vital waterway. Concerns over potential mine threats and the extensive time required for demining operations are expected to delay a full return to normal shipping traffic for several weeks.
Global oil prices fell about 5% on Monday in response to the news. While the deal is welcomed, shipping companies are waiting for more details, including confirmation of mine clearance in the strait. Shipping association Bimco still considers transits highly risky due to mine concerns.
Middle Eastern producers have been forced to shut in more than 10 million barrels per day of oil production since the Strait of Hormuz was closed. Producers will need months to fully ramp up wells to previous output levels. Some producers like Saudi Arabia and the United Arab Emirates would be quicker to restore output compared to Iraq, which had to curtail the highest proportion of its production. Experts suggest that returning to full pre-conflict volumes could take about a year.
Some shipping companies have made it clear that they will wait until the deal is formalized before attempting to cross the Strait. Even for shipowners who are willing to make the crossing, organizing insurance and other practical issues could further delay the recovery of oil and gas shipments.
