Strait of hormuz reopens, but oil flows stuck in slow lane amid minefields and market jitters

Reopening the Strait of Hormuz is unfolding as a painstakingly slow process, hindered by the need to clear extensive minefields that still render the central part of the strait unnavigable, restricting shipping to perilous inshore zones near Oman and Iran. Shipping companies and insurers remain cautious, with traffic levels far below the pre-conflict average of 135 to 150 ships daily, as operators hesitate to risk transit amid ongoing security threats and uncertain ceasefire durability. Jakob Larsen of BIMCO emphasizes that only limited corridors are currently safe, while lead analyst Matt Smith warns that it will take weeks or even months for the roughly 120 tankers trapped in the Gulf to exit and for normal flows to resume, underscoring the logistical and psychological barriers delaying a full reopening.

Beyond navigational hazards, the technical challenges of restarting oil production after prolonged shutdowns add another layer of complexity to restoring flows through the Strait. Experts like Vikas Dwivedi of Macquarie Group describe well restarts as a 'box of chocolates' due to unpredictable outcomes stemming from underground pressure imbalances, equipment corrosion, and potential damage to pumps and concrete casings caused by extended inactivity. This fragile engineering phase is compounded by damage to critical infrastructure such as Qatar’s Ras Laffan LNG terminal and the shutdown of refineries, meaning that even with the strait partially reopened, full normalization of oil output will require meticulous planning over weeks or months.

The logistical hurdles extend beyond physical repairs and mine clearance to include the slow replenishment of depleted regional crude stockpiles and the lengthy tanker round trips between the Gulf Cooperation Council and key Asian markets like Singapore, which can take one to two months. Analysts such as Chen Chien-Ming and Sushant Gupta highlight that global strategic petroleum reserves are at their lowest levels since the 1980s, leaving the market with minimal buffer to absorb supply disruptions and prolonging elevated oil prices despite the peace deal. Gupta cautions that the signing of the agreement is merely a first step, and it is unrealistic to expect a swift return to pre-conflict price levels given these intertwined technical and logistical constraints.

The initial market reaction to the Strait of Hormuz reopening and the peace deal was a notable drop in oil prices, with Brent crude falling about 4% to roughly $83 a barrel and WTI settling near $80, reflecting relief from the wartime premium that peaked at $126.41. However, this price correction is tempered by the reality that the restoration of oil flows is a slow, complex process; as David Blackmon explains, disrupted trade patterns and logistical delays mean it will take time for tankers to re-enter the global market and for trading to normalize, preventing an immediate return to pre-conflict supply levels.

Despite the easing of tensions, oil prices remain elevated due to persistent supply constraints and depleted global reserves, with strategic petroleum reserves at their lowest since 1990. Industry experts warn that it could take months for oil flows to normalize fully, and President Donald Trump highlighted the precarious situation by noting that emergency reserves could run out in about four weeks. This fragile balance keeps upward pressure on prices, even as market optimism grows, underscoring the vulnerability of global oil inventories amid ongoing logistical and infrastructural challenges.

Market optimism following the ceasefire is cautious, as the volume of traffic through the Strait remains minimal compared to pre-war levels, with significant hurdles such as costly ship insurance and the threat of mines still present. The 60-day ceasefire introduces uncertainty since the strait could close again or face operational disruptions, including potential demands by Tehran for traffic fees, which could complicate oil flows. Analysts like David Oxley of Capital Economics warn that traders may be 'pricing in perfection,' suggesting the current rally might overlook the gradual, complex nature of reopening and production recovery.

The gradual return of barrels through the Strait, including Iran’s export channel, will increase supply but not immediately restore pre-conflict flow, as some volumes have already been absorbed by alternative routes and sanctions-related distortions linger. Iran’s exports collapsed from 1.5 mb/d in April to under 0.3 mb/d in May, so the relaxation of sanctions primarily reduces distressed discounts rather than adding fresh volume. This nuanced supply-side shift means that while the market has shed much of the war premium, the floor for prices remains elevated due to the heavier but still constrained supply environment.

Market optimism surrounding the 60-day ceasefire between Iran and coalition forces may be premature, as analysts caution that the fragile nature of the agreement leaves the Strait of Hormuz vulnerable to renewed conflict or logistical complications. Tehran's demands for traffic fees and the limited duration of the ceasefire inject uncertainty into the strait's reopening, threatening to disrupt oil market stability just as tentative progress is made.

Despite some resumption of maritime traffic, shipping activity through the Strait of Hormuz remains a fraction of pre-war levels, with only 55 ships passing daily compared to the usual 135 to 150. This subdued flow reflects persistent security concerns, including the presence of mines in the central channel—deemed unnavigable by BIMCO's Jakob Larsen—and costly insurance premiums that deter operators from venturing into the waterway.

The ceasefire's fragility is underscored by recent setbacks such as the cancellation of Iran-U.S. talks and Iran's renewed threats to close the strait, which have sown apprehension among shippers and shipping companies. Lead analyst Matt Smith highlights the absence of a 'first mover' willing to fully commit to reopening routes, while nearly 500 vessels, including 220 oil tankers, remain trapped in the Persian Gulf, signaling that normalization of oil flows will likely take months.