Energy Sector Clears ‘Hormuz’ After US-Iran Deal, Risk Premium in Focus

Ships wait to transit the Strait of Hormuz on June 15. REUTERS
Ships wait to transit the Strait of Hormuz on June 15. REUTERS
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Energy Sector Clears ‘Hormuz’ After US-Iran Deal, Risk Premium in Focus

Ships wait to transit the Strait of Hormuz on June 15. REUTERS
Ships wait to transit the Strait of Hormuz on June 15. REUTERS

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.



Fitch Affirms Saudi Arabia at 'A+', Outlook Stable

A view of the Saudi capital, Riyadh. (SPA)
A view of the Saudi capital, Riyadh. (SPA)
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Fitch Affirms Saudi Arabia at 'A+', Outlook Stable

A view of the Saudi capital, Riyadh. (SPA)
A view of the Saudi capital, Riyadh. (SPA)

Fitch Ratings has affirmed Saudi Arabia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at "A+" with a Stable Outlook, the agency said on Friday.

The rating reflects strong fiscal and external balance sheets, with government debt/GDP and sovereign net foreign assets (SNFA) considerably stronger than the "A" and "AA'" medians, and significant fiscal buffers in the form of deposits and other public sector assets, it added.

"Oil dependence and World Bank Governance Indicators (WBGI) have improved but remain weaknesses. Geopolitical risk is high, but the economy and public finances have been resilient to the US-Iran war," it stressed.

"Fitch forecasts real GDP growth will slow to 0.6% in 2026 due to disruption to trade caused by the closure of the Strait of Hormuz," it continued.

"Flows through the East-West pipeline supported oil production during the war and we expect output to be ramped up to meet external demand following the reopening of the Strait and to rebuild domestic stocks, but at an annual average of 9m b/d it will be below the 2025 level," it said.

"Non-oil growth will be hit by an inability to export petrochemicals during the closure of the Strait, but consumer spending held up and business confidence is recovering."

"Growth will rebound in 2027 as the normalization of flows through the Strait allows higher oil and petrochemicals production, before easing to 2.9% in 2028 The phased opening of gigaprojects (many of which have launched initial operations), the proximity of key events and guidance that the Public Investment Fund will keep domestic spending largely unchanged in its new five-year plan, will also support growth," Fitch noted.

The King Fahd Industrial Port in Yanbu, Saudi Arabia (SPA)

"The fiscal deficit is projected to narrow in 2026 owing to higher oil revenues, as prices will offset lower volumes. Spending will also rise, reflecting the impact of the war, but much of the jump in 1Q was the precautionary frontloading of spending from later in the year," it said.

Fitch forecasts that lower oil revenues will widen the deficit to 4.7% in 2027, consistent with a fiscal breakeven oil price of USD94/b.

Spending is expected to decline in 2027, due to an easing of war-related pressures, lower capex and ongoing efforts to reduce rigidities in current spending. Expenditure adjustment will allow the deficit to narrow in 2028 despite a projected further fall in oil prices.

"Our fiscal projections are consistent with a further increase in debt/GDP, which we project at 41.3% at end-2028 (projected peer median of 58.1%), from 31.8% at end-2025. based on deposits remaining around 10% of GDP," said Fitch.

"Fitch forecasts a small current account surplus for 2026 due to higher oil export revenues. Lower oil prices and ongoing domestic demand growth that has a heavy component of imported goods, services and labor, will lead to a deficit of 5% of GDP by 2028. Current account deficits will be financed by external borrowing and the ongoing reorientation of public assets to domestic from foreign investments," it continued.

"Banks have been resilient to the war and did not require any support measures from the central bank," it stressed. "At end-1Q, non-performing loans were 1.1% and the Tier 1 capital ratio 19.2%, both improved from end-2024. Credit growth has slowed, particularly mortgages, in response to policy measures, and is being outpaced by deposit growth."

Fitch maintained its mid-year 2026 sector outlook for Saudi banks at "neutral".


China Temporarily Bans Helium Exports as US-Iran Tensions Flare Again

Ships and containers at a Chinese port (Reuters)
Ships and containers at a Chinese port (Reuters)
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China Temporarily Bans Helium Exports as US-Iran Tensions Flare Again

Ships and containers at a Chinese port (Reuters)
Ships and containers at a Chinese port (Reuters)

China announced on Friday a temporary export ban on helium, effective immediately, as resumption of military conflict in the Middle East threatens to trigger new shortages of the gas critical for chip manufacturing.

Earlier this year, the US-Israeli war on Iran led to helium shortages, disrupting companies globally, including in China, where the AI industry increasingly relies on domestic chips for training and ⁠running AI models. Helium is essential for heat management in semiconductor production.

The helium ban is the latest example of Beijing seeking to prevent domestic shortages of critical materials by curbing exports. It has previously imposed similar measures on fuel, fertilizers and sulfuric acid.

China is also looking to boost domestic chip manufacturing capacity and reduce the industry's dependence on cutting-edge Nvidia semiconductors that fall under US export controls.

China is heavily ⁠dependent on overseas helium despite efforts to expand domestic production.

Still, the export ban could squeeze global supply further because Chinese companies have increasingly acted as intermediaries, importing Russian helium and re-exporting some volumes to overseas markets, including Europe.

According to Reuters, analysts ⁠estimate China imports around 85% or more of its helium requirements. Qatar accounts for a major share of global helium output and has supplied more than half ⁠of China's imports in recent years.

Helium is extracted from natural gas fields with unusually high helium concentrations and cannot be quickly manufactured from ⁠other industrial processes.

In chipmaking, it is used for wafer cooling, plasma etching, chemical vapor deposition, atomic layer deposition, lithography support and leak detection.


IEA Says Global Oil Demand Picks Up Despite War Fears

FILE PHOTO: A drone view of three berths able to load vessels with oil is seen after their construction at Westridge Marine Terminal, the terminus of the Canadian government-owned Trans Mountain pipeline expansion project in Burnaby, British Columbia, Canada, April 26, 2024. REUTERS/Chris Helgren/File Photo
FILE PHOTO: A drone view of three berths able to load vessels with oil is seen after their construction at Westridge Marine Terminal, the terminus of the Canadian government-owned Trans Mountain pipeline expansion project in Burnaby, British Columbia, Canada, April 26, 2024. REUTERS/Chris Helgren/File Photo
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IEA Says Global Oil Demand Picks Up Despite War Fears

FILE PHOTO: A drone view of three berths able to load vessels with oil is seen after their construction at Westridge Marine Terminal, the terminus of the Canadian government-owned Trans Mountain pipeline expansion project in Burnaby, British Columbia, Canada, April 26, 2024. REUTERS/Chris Helgren/File Photo
FILE PHOTO: A drone view of three berths able to load vessels with oil is seen after their construction at Westridge Marine Terminal, the terminus of the Canadian government-owned Trans Mountain pipeline expansion project in Burnaby, British Columbia, Canada, April 26, 2024. REUTERS/Chris Helgren/File Photo

The International Energy Agency said Friday that "a recovery" in global oil demand had started as supplies tentatively start moving through the strategic Strait of Hormuz again and prices ease.

"A recovery in world oil demand is underway, with consumption set to rise from its May nadir," AFP quoted the IEA's monthly report as saying.

The agency had in June predicted a fall in demand of 1.1 million barrels a day (mbd) through 2026 because of the Middle East war, which strangled traffic through the strait. It now expects a one million barrel a day fall.

"Global oil supply rebounded by a sharp 4.1 mbd to 98.8 mbd in June, as a resumption of flows through the Strait of Hormuz underpinned a partial recovery in Gulf production. World output was nevertheless some 9.4 mb/d below pre-war levels," it said.

"Total Gulf oil exports, including volumes bypassing the Strait, surged by 6.5 mbd in June, to 16.1 mbd - a big jump but still well below the 24 mbd average before the war started."

According to the IEA, world supply improved to 102.6 mbd in June and would continue to get better if there was "a swift de-escalation of renewed hostilities".

"If transit volumes improve, oil supply will expand by 7.5 mbd next year," the agency added.

The agency said world oil reserves increased for the first time since the US-Israeli attacks on Iran on February 28 set off the war.

It added that stocks in the richest nations had fallen as their oil imports remained low despite the rise in volumes being transported by sea.

While oil prices fell dramatically in June, fresh fighting between US and Iranian forces this week "clouds the outlook", the IEA said.

"Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalization in oil markets," it commented.