Oil prices plummeted after the US and Iran announced a tentative peace deal that includes reopening the Strait of Hormuz and extending a ceasefire. Brent crude fell to approximately $82-$83 a barrel, while West Texas Intermediate dropped to around $80, marking their lowest levels since early March. This immediate price drop reflects a decrease in the geopolitical risk premium associated with energy markets, as traders anticipate the return of Iranian oil supply.
However, the full recovery of oil supply chains is expected to be a prolonged process, taking weeks to months. Industry experts warn that it's not simply a matter of "flipping a switch." The reopening of the Strait of Hormuz is just the first step; challenges include clearing a backlog of an estimated 500 large commercial vessels, securing insurance for shipping, and restoring damaged oil facilities. Some facilities are expected to take as long as five years to fully repair, and the overall repair bill is estimated to be in the tens of billions of dollars. Furthermore, strategic national stockpiles, such as the US Strategic Petroleum Reserve which depleted at least 75 million barrels, will need to be replenished, adding another layer of demand.
Analysts predict that despite the immediate logistical challenges, the underlying market conditions point towards an oversupply in the near future. Fitch Ratings anticipates Brent crude to average $87 a barrel in 2026, assuming the Strait reopens by late July. The agency projects global oil supply to be 2.9 million barrels per day lower in 2026 than in 2025 due to the prolonged closure, but also forecasts a rapid recovery in Middle East production and strong growth from non-OPEC producers. The market could quickly swing into a surplus, potentially reaching 4 million barrels per day in the fourth quarter, depending on OPEC+ production policies.
The International Energy Agency (IEA) reportedly forecasts a 3.8 million barrels per day surplus in 2026, alongside a rare annual global oil demand contraction of 420,000 barrels per day. This weakened demand is attributed to slowing economic activity in China and emerging markets. The return of Iranian supply, which had seen a pre-war decline of 350,000 barrels per day, will exacerbate this oversupply. The long-term impact of the crisis may also lead to the construction of infrastructure to bypass the Strait of Hormuz, fundamentally reshaping global energy flows.
