Oil and Gas Supplies Face Months-Long Recovery Post-Iran Deal, Experts Warn
Energy experts predict it will take months for global oil and gas supplies to return to normal levels, despite an agreement to end the Iran war and reopen the Strait of Hormuz. High oil and gasoline prices are unlikely to ease immediately due to various logistical, security, and operational challenges. The process of restarting 'shut-in' oil fields, navigating the Strait of Hormuz, and rebuilding trust in the region's stability will contribute to the prolonged recovery period.
Global oil and gasoline supplies are expected to take months to stabilize, even after an agreement to end the Iran war and reopen the Strait of Hormuz. Energy experts indicate that the resolution of high oil and gasoline prices and energy supply issues will not be immediate.
Key factors contributing to the slow recovery include the time required for shipping and refining crude oil, alongside ongoing doubts regarding the security of transit through the strait. Before the war, approximately one-fifth of the world's oil and gasoline supplies typically traveled through the Strait of Hormuz. Ships loaded with crude oil have been stranded in the Persian Gulf for over three months due to unsafe travel conditions.
Daniel Evans, global head of fuels and refining research at S&P Global Energy, stated that it will take time for comfort and insurance to be established, particularly for personnel to restart assets on the ground. The process involves existing stranded ships exiting the strait, followed by new tankers entering for loading. Tankers operate slowly, with journeys from the strait to distant countries, refining, and final delivery taking months.
Additionally, some Middle Eastern producers had paused oil extraction, known as a shut-in, after running out of storage space. Restarting these operations is a gradual process. Countries like Saudi Arabia and the United Arab Emirates, which have alternative pipelines or routes to bypass the Strait of Hormuz, may be quicker to resume production.
However, countries such as Iraq could face more significant challenges, potentially taking about a year to recover due to larger shut-ins and more difficult fields, according to Alan Gelder, senior vice president of refining, chemicals, and oil markets at Wood Mackenzie. Investment in the energy system, which typically has long lead times, ceased during the strait's closure, and restarting this capital flow will also require time.
Daniel Sternoff, a senior fellow at the Center on Global Energy Policy at Columbia University, noted that countries that halted oil production will likely wait for assurances of a stable and durable strait, along with a ceasefire lasting more than 30 or 60 days, before fully restarting operations.
According to Fortune, these combined factors suggest a prolonged period before energy companies can meet global demand.
