The price of oil briefly fell below $72.48 a barrel on Thursday – the first time it has traded below the level it stood at the day before the US and Israel launched attacks on Iran on 28 February. Global benchmark Brent crude later edged up to $73.23, but the drop marks a dramatic reversal from the wild ride that followed Iran’s response: effectively closing the Strait of Hormuz, a critical waterway for oil and gas shipments.
The reopening of the strait has been gradual but steady. Since the US and Iran signed a Memorandum of Understanding (MOU) on 17 June, setting out a 60-day period for negotiations on Tehran’s nuclear programme and other measures to end the war, the number of vessels crossing the waterway has risen significantly. According to maritime intelligence firm Kpler, 284 vessels have made the transit from 18 June – the day after the deal was signed – although that is still well below the pre-conflict average of some 138 crossings each day. The ships passing through in recent days include those carrying crude oil, liquefied natural gas (LNG), fertiliser and other goods.
“Oil price falls to pre-Iran war level as Strait of Hormuz traffic resumes after US-Iran deal.”
Dimitris Maniatis, chief executive of maritime risk advisory firm Marisks, which is working with ships stuck in the region, described a “tremendous shift” with far more ships using the strait. He said a limited number of ships can cross a northern passageway with the permission of Iranian authorities, while the US navy has also provided guidance for vessels to travel through a southern route that is safe from mines and other obstacles laid out since the war. Still, hundreds of ships appear to be waiting in the Gulf, and the number of crossings remains below pre-war levels, when more than 100 ships used the strait daily.
Representatives from the US and Iran met in Switzerland last weekend for talks to end the war, which resulted in the US partially lifting sanctions on Iranian oil exports. Mediators Qatar and Pakistan said in a joint statement on Monday that the two sides had formed a “communication line” to prevent misunderstandings “with the aim of safe passage for commercial vessels through the Strait of Hormuz”.
Despite the price fall, risks remain. Pratibha Thaker, regional director of Middle East and Africa at the Economist Intelligence Unit, warned: “Markets are still watching the region closely, and any renewed tensions could quickly send oil higher again.”
The focus now shifts to how quickly fuel prices at the pump – which rose sharply when the Iran war began – will fall. One thing is clear: the cost of crude has been moving sharply lower since the MOU was signed, but the full impact on motorists remains to be seen.