The US and Iran have committed to reopening the Strait of Hormuz, a crucial artery for oil and natural gas shipping, which has been largely blocked since their conflict began in February. However, returning traffic to pre-war levels presents significant challenges. The prediction market Kalshi estimates a 51% probability of normal traffic before August 1 and 68% before September 1. Key impediments include ongoing aggression between the two nations, potential transit fees, an estimated eighty sea mines still present, and extensive infrastructure damage, particularly a more than 100-day disruption equivalent to over 10 million barrels per day of oil supply and approximately 300 million cubic meters per day of LNG.
The interim US-Iran peace agreement, signed just over three weeks ago, has already begun to unravel. This agreement aimed to reopen the Strait and lay the groundwork for a permanent end to the war, but its collapse would severely hinder restoration efforts. Optimistic assessments suggest that most, but not all, supply could return to global markets within a few months, even if the US-Iran war continues. Pessimistic views foresee an uneven regional recovery with periodic setbacks, making a full recovery on any timeline difficult.
Lloyd's List Intelligence reported that no large vessel had crossed the strait via the US-coordinated route while broadcasting its location since Tuesday, with traceable crossings via the Oman-hugging lane effectively grinding to a halt. While crude flows through the Strait averaged 12.76 million barrels per day (bpd) between July 6 and July 8, a 15% decrease in overall vessel transits was observed on July 8 compared to the previous day after US airstrikes against Iranian military targets. Total vessel transits were 41 on July 8, down from 48 a day earlier.
Iran intends to profit from the reopening of the Strait, potentially generating up to $40 billion annually, similar to its recent annual oil export revenues. The interim deal stipulated that Iran would allow ships to pass "with no charge for 60 days only" and work with Oman to define future administration and maritime services. Iran has already sought to enforce its regulatory role, striking multiple commercial vessels with drones and missiles for not complying, leading the Trump administration to reinstate sanctions on Iran's oil sales. Repairing damage to QatarEnergy's production facilities at Ras Laffan, for example, is expected to take up to five years, highlighting the long-term economic impact.
