Explained: what next for energy markets after US and Iran agree to halt war and reopen Hormuz?

The US and Iran announced late on Sunday they had reached an initial agreement to the halt the Middle East conflict and reopen the Strait of Hormuz, bringing respite in sight to a global energy crisis sparked by the more than 100-day war.

“This Great Deal will bring Peace and Security to the whole Region,” US President Donald Trump said in a post on social media. “With the opening of the Strait upon the signing of the Deal on Friday, for purposes of mine removal, oil will flow on both ends again for the Region, and the World!” he said, adding: "Ships of the World, start your engines. Let the oil flow!"

While oil prices slipped to their lowest since March on Monday following the announcement, officials and energy experts cautioned that a return to normalcy for energy markets and shipping in the world’s most critical chokepoint, as well as the resumption of pre-war energy production, could still be weeks and months away.

What does the initial US-Iran MoU say? 

The Memorandum of Understanding (MoU) announced by both US and Iran is scheduled to be signed on Friday in Switzerland. Based on the agreements reached, the war will end “permanently and immediately on all fronts, including in Lebanon,” Iran’s Supreme National Security Council said in a statement, adding that the naval blockade against Iran will be “lifted immediately and entirely”.

Over the weekend, President Trump had promised an agreement would be reached by Sunday, his 80th birthday. But details of the MoU provisions remained sketchy and the two sides have not released a copy of the agreement, suggesting that key sticking points have been left for the next stage of talks.

According to Pakistan’s Prime Minister Shehbaz Sharif, “with the agreement now in place, mediators will facilitate a series of meetings this week. These pre-implementation discussions will lay the foundation for the technical talks and the official signing ceremony.” 

“Both sides have declared the immediate and permanent termination of military operations on all fronts, including in Lebanon,” he said in a post on X.

“After the initial relief, the fact that the contents of the MoU are not known is likely to inject unease and uncertainty into the market. Until the MoU is made public, expect a full-on narrative war between Washington and Tehran on its contents. That could mean a week of uncertainty and volatility for the oil market."
- Vandana Hari; founder of Vanda Insights and a columnist for Energy Connects

Iranian officials told Reuters that the MoU removes the US naval blockade of Iranian ports and extends the current ceasefire for 60 days. The signing of the MoU on Friday sets the stage for a 60-day technical discussions on the fate of Iran’s nuclear programme.

How did oil markets react to the deal?

Oil prices tumbled to their lowest since March on Monday after the deal was announced. Brent crude futures fell $4.08, or 4.7%, to $83.25 a barrel by 0415 GMT and US West Texas Intermediate was at $80.53, down $4.35, or 5.1%. Both contracts also fell by more than 3% on Friday.

But those prices are still well above the roughly $70 per barrel where oil was trading before the war started.

“After the initial relief, the fact that the contents of the MoU are not known is likely to inject unease and uncertainty into the market,” said Vandana Hari, founder of Vanda Insights and a columnist for Energy Connects. “Will the language be made public only upon signing on Friday? If yes, that’s going to be a nervous wait. Until the MoU is made public, expect a full-on narrative war between Washington and Tehran on its contents. That could mean a week of uncertainty and volatility for the oil market,” she said.

What happens in the Strait of Hormuz after the MoU?

According to President Trump, the strait would reopen on June 19, after the agreement is signed and mines are removed from the waterway. That would bring an end to Iran’s attacks on shipping and the US naval blockade of Iranian ports, Reuters reported.

President Trump said there would be a “toll-free” opening of the strait once the agreement is signed in Switzerland, suggesting that Iran had moved away from its earlier position of charging commercial shipping for passage.

However, shipowners and traders reacted with caution to the announcement, with many saying they would wait for more details in order to assess whether safe transits are possible after months of false starts.

Before the effective closure of the Strait of Hormuz, the waterway handled around 20% of global oil supply in a market of more than 100 million barrels a day. In addition, nearly 600 vessels are still stuck in the Arabian Gulf awaiting access to exit the strait, according to Kpler.

With limited information so far, there was little activity in the strait in the early hours of Monday as the news rippled out, with the exception of one liquefied natural gas tanker, Disha, testing the waters  as it heads toward Hormuz, Bloomberg reported.

How long will it take for energy markets to return to normal?

Despite the MoU announcement, analysts cautioned against a fast return to normal  for energy markets and said that assumptions that markets will quickly revert to pre-war conditions need to scrutinised.

 “A stop-and-start ceasefire that repeatedly disrupts shipping routes, delays mine-clearing operations, or enables periodic attacks on critical infrastructure will slow the return of supply and keep risk premiums elevated. Gulf producers remain committed to their role as reliable suppliers, but stability cannot be manufactured overnight, and globally, inventories are at multiyear lows,” said Landon Derentz, Vice President for Energy and Infrastructure at the Atlantic Council.

“It’s going to take time for people to feel comfortable and for insurance to be in place… particularly to get people on the ground to restart some of these assets,” Daniel Evans, Global Head of Fuels and Refining Research at S&P Global Energy, told Euro News. “To bring a ship in, you need to be confident that you’ve got a big enough window of safety to bring it in, load it and move it out," he added.

In addition, producers in the Middle East who paused extracting oil from the ground during the war when they ran out of storage space, would also require a longer lead time to restart operations.

“Another challenge is that the war caused structural damage. Portions of the region’s downstream infrastructure and liquefied natural gas export capacity, including facilities at Ras Laffan, will require extensive repairs. Even under the most optimistic scenario, a return to business as usual will take time,” Derentz, who is also the Morningstar Chair for global energy security at the Council’s Global Energy Center, added.

How are Gulf producers placed in resuming regular energy supplies once Hormuz reopens?

According to Alan Gelder, Senior Vice President of Refining, Chemicals and Oil Markets at Wood Mackenzie, countries such as the UAE and Saudi Arabia, which are already using alternate pipelines or routes besides the Strait of Hormuz to deliver oil, may be among the quickest to resume production once the strait reopens. 

“If the strait genuinely reopens – and, critically, if maritime traffic can move without the threat of missiles, drones, or mines – it would be unwise to bet against the ingenuity and determination of the energy sector. Oil-storage facilities throughout the Gulf remain well-stocked, ready to offer immediate relief to markets, while thousands of engineers and technicians are already working to restore production and export infrastructure to pre-war levels,” said Derentz.