Hormuz Reopens, But Long-Term Stability Remains Elusive

The fragile U.S.-Iran deal has brought relief to global energy markets by ending months of fighting and reopening the Strait of Hormuz. This key waterway is responsible for around a fifth of global oil and LNG flow, making its closure a significant concern for supply-strapped markets.

However, despite this agreement, the underlying disputes that led to the conflict remain unresolved, casting doubt over the long-term stability of the region. Tensions have already resurfaced, with Iran insisting on linking any deal to Israel's campaign against Hezbollah in Lebanon.

The reopening of Hormuz is expected to lead to a gradual increase in tanker traffic, but the process will be slow due to lingering risks and complex logistics. Shipping companies are likely to minimize time spent inside the Gulf, while insurance costs and security concerns remain high.

As a result, it's estimated that transit through Hormuz may not return to its pre-war peak of nearly 20 million barrels per day (bpd) anytime soon. A more plausible scenario is a durable flow of around 16 million bpd in the months and potentially years ahead.