Oil flows unlikely to recover swiftly despite Iran-US deal

An agreement between the U.S. and Iran to reopen the Strait of Hormuz does not signal an immediate return to normal oil and gas flows, according to industry experts. The deal is merely the first step, and a full recovery of shipments could take months, or even up to a year, for some producers.

Middle Eastern producers were forced to shut in over 10 million barrels per day of oil production following the closure of the Strait of Hormuz three and a half months ago. Ramping up wells to previous output levels will require significant time. Some producers, like Saudi Arabia and the UAE, are expected to restore output more quickly than others, such as Iraq, which faces greater challenges due to larger production shut-ins and more complex field operations.

Analysts at Wood Mackenzie previously suggested that affected fields could reach 70% of prior production within three months and 90% within six months, with the final 1 million bpd taking considerably longer. The speed at which supply chains normalize and export flows recover will be crucial in determining how much of the geopolitical risk premium remains in the market, according to Ole Hansen, head of commodity strategy at Saxo Bank.

Shipping companies are indicating they will wait for the deal to be formalized before attempting to cross the Strait. Even for those willing to make the journey, securing insurance and addressing other practical issues could further delay the recovery. The agreement to reopen the Strait of Hormuz marks the beginning of a potentially long road to recovery for the oil and gas industry.