US-Iran peace deal: what happens to Strait of Hormuz supplies?
Maritime traffic on the Strait of Hormuz is expected to reopen and permitted free passage for 60 days after the US and Iran signed a 14-point agreement to end the Middle East conflict.
On the sidelines of the G7 summit in France, President Donald Trump signed the deal, one of the provisions of which is a rapid reopening of the critical waterway through which around 20% of the world’s crude oil supply transits. Nearly 600 ships and 20,000 seafarers are stranded in Gulf waters as a result of the effective closure of the Strait of Hormuz since the Middle East conflict started, according to the International Chamber of Shipping.
Under article 5 of the US-Iran agreement, upon the signing the MoU, “the Islamic Republic of Iran will make arrangements using its best efforts for the safe passage of commercial vessels with no charge, for 60 days only,” from the Gulf to the Sea of Oman and vice versa.
“The traffic of commercial vessels will immediately start, and considering the need for removing the technical and military obstacles, and demining by the Islamic Republic of Iran will be instated within 30 days. The Islamic Republic of Iran will conduct dialog with the Sultanate of Oman to define the future administration and maritime services in the Strait of Hormuz,” according to the statement, in discussion with other Gulf states in line with the applicable international law and the sovereign rights of coastal states of the Strait of Hormuz.
Alternative routes still in play
Once formal approval is given to re-open, stranded ships could theoretically begin to move through the strait almost immediately. However, analysts said the focus will now be on implementation of the agreement as well as the mechanism governing the passage of ships through the Strait.
The oil and shipping industry remained largely in wait-and-see mode, although a handful of vessels began rerouting toward the Middle East, while Iranian tankers laden with oil moved out.
According to the BBC, three Saudi Arabia-flagged supertankers have transited the Strait of Hormuz in recent days. Data from MarineTraffic suggests they made the crossing with their position transmitters off before switching them back on after crossing into the Gulf of Oman.
A gradual shift to pre-war exports
Goldman Sachs said Gulf exports are now expected to “normalise” by the end of next month, compared with the end of August previously. Still, flows may recover to only 70% of pre-war levels, the bank’s analysts said in a note, highlighting producers tapping alternative routes.
According to Bloomberg, shipbrokers and owners have reported tentative inquiries about hiring vessels to collect oil from ports across the region. Iraq, the region’s second-largest producer before the war, said it was taking steps to increase exports.
While oil prices have eased, pressure on inventories remains acute. Stockpiles at Cushing, the largest US commercial storage hub, have sunk to about 20 million barrels, the lowest level in years. On Thursday, oil fell as the interim US-Iran peace deal went into effect. Brent sank toward $78 a barrel after a modest gain on Wednesday, while West Texas Intermediate was near $75.
