OPEC's Grip on Oil Markets at Risk as Hormuz Strait Reopens

The Hormuz Strait's reopening could deal a significant blow to OPEC's already fragile grip on the market. The closure of the vital waterway, through which nearly a fifth of the world's oil and gas flowed before the conflict, has sharply diminished output from the Organization of the Petroleum Exporting Countries.

The Iran war led to a 13 million barrels per day loss in Middle East exports, representing more than $80 billion in lost revenue. The damage to energy infrastructure runs into tens of billions of dollars, and pent-up demand from major energy importers will be huge given the incentives to move quickly.

Asian governments and refineries have curtailed consumption during the conflict and drawn down inventories. Many will likely rebuild stockpiles as supply and demand recover in sync. However, it could take months for Middle East producers to restart much of the roughly 11 million bpd of shut-in output.

OPEC's production collapsed to an average 20 million bpd in April from 31 million in February. The cartel looks far less capable of playing its traditional role in stabilising markets during past crises, such as the COVID-19 pandemic.