The energy sector and the global economy have avoided the worst-case scenario: oil at $150 a barrel.
That was the level many financial institutions and international companies had used in shaping their investment assumptions. International officials and governments also expected it and aligned with those forecasts.
For the global economy, $150 oil would have meant an energy sector slipping out of control, with damaging consequences for other industries. That did not happen. Brent crude is now trading at about $80 a barrel, roughly $70 below that feared level and above its pre-war price of $70.
With shipping through the Strait of Hormuz resuming after a preliminary peace agreement reached by the United States and Iran, expected to take effect next Friday, energy is again moving to the center of the global economic picture. For years, the sector has supported global growth, development and market stability, helping shield international markets from sudden shocks.
What comes after the agreement?
Since the preliminary US-Iran agreement was announced, oil prices have fallen by nearly $20 a barrel. That is a major cost relief for countries that import crude, and one that is likely to feed through to many other goods, given oil’s role as a basic input in finished products.
Stock markets rose in parallel, lifted by optimism over the reopening of the Strait of Hormuz and the return of shipping to normal. The prospect of commodity prices easing back toward pre-war levels could support corporate earnings and the wider global economy.
But Mamdouh Salameh, an international energy expert, said prices would not return to pre-war levels so easily.
“The current situation indicates that Iran controls 20% of global oil and gas supplies as a result of its closure of the Strait of Hormuz. Therefore, oil prices after the agreement must take into account a permanent price premium because of Iran’s control of the Strait of Hormuz,” Salameh told Asharq Al-Awsat.
Speaking from London, Salameh said that even after the strait reopens, “the volume of oil flowing through it will fall to half its pre-war level because of the damage sustained by oil production facilities in the Arabian Gulf.”
He expected repairs to some facilities to take about eight to 12 months. “For this reason, Brent crude will not return to its pre-war level of $60 to $65 a barrel, but will range between $85 and $90 for many years to come,” he said.
Spot premiums for crude oil and some refined products in Asian markets fell on Tuesday, settling at pre-war levels after the announcement of the preliminary agreement between Washington and Tehran. Still, caution over the timeline for restoring normal navigation has so far placed a floor under energy prices, preventing a sharper decline.
Supply and demand
Saudi Aramco President Amin Nasser estimated that the oil market loses about 100 million additional barrels for every week the Strait of Hormuz remains closed, after the crisis had already removed about 1 billion barrels from supply.
Nasser said in remarks in mid-May that the gap was being covered through withdrawals from strategic and commercial inventories.
About 20% of global oil supplies pass through the Strait of Hormuz. Its closure has tested the depth of strategic inventories worldwide and posed a major challenge to the global energy sector. That was clear in moves by the International Energy Agency and its members to draw from strategic reserves.
Estimates of global demand growth this year range from 700,000 to 900,000 barrels per day. That suggests demand will remain strong long after Hormuz reopens, driven by daily oil needs for power generation and normal consumption, as well as the need to rebuild inventories.
Asia is the most exposed. The US Energy Information Administration estimates that 84% of the crude oil and condensates that passed through Hormuz in 2024 went to Asian markets, led by China, India, Japan and South Korea.
Against this backdrop, Aramco, the Saudi oil giant, said its maximum production capacity remains intact and that the company can, if requested by the government and within allocated quotas, return to maximum sustained capacity in less than three weeks.
QatarEnergy, among the hardest hit, said it expects to raise natural gas production to about 50% of capacity one month after safe passage through the Strait of Hormuz is restored.
The world is now waiting for the terms of the preliminary agreement between the United States and Iran to be disclosed, so implementation can begin. Only then can a timeline be set for ships to reach “zero waiting,” followed by the return of Gulf production capacity.
Haitham El-Gendy, an international markets expert, said, “The matter depends on how quickly navigation through the Strait of Hormuz returns to pre-war levels, and how quickly supplies from the Gulf region resume. Both issues depend primarily on hostilities not resuming during the 60-day negotiation period.”
“If we assume that things will proceed well, a return to normal will require weeks, given the scale of tanker congestion around the strait and the need to remove mines,” El-Gendy told Asharq Al-Awsat. “As for Gulf supplies, this will also require varying periods depending on the extent of the damage to each country’s energy facilities.”
According to Wood Mackenzie, halted crude production fields in the region will return to 70% of their previous output within three months and about 90% within six months. For liquefied natural gas, of which Qatar produces one-fifth of global supply, a return to full production capacity will take several months and could stretch into years after damage to the Ras Laffan facility.
On crude prices, El-Gendy said that if tensions do not flare again, oil could move in the $80-a-barrel range, with room to rise, as countries replenish inventories and strategic reserves depleted in recent months and Chinese demand recovers to pre-war levels.
