Energy Experts Warn of Slow Oil and Gas Supply Recovery After Iran Deal
Oil and gas supply normalization will take months after the Iran deal due to stranded tankers, shut-in production, and safety concerns in the Strait of Hormuz, analysts say.
Energy experts caution that the recovery of oil and gas supplies following the Iran deal will be slow, as it will take time to resume shipping and refining operations and ensure safe passage through the Strait of Hormuz. Tankers loaded with crude oil have been stranded in the Persian Gulf for over three months, unable to safely traverse the waterway through which about one-fifth of the world's oil and gasoline supplies typically flowed before the war.
On Monday, after the deal was announced, oil prices slipped. Brent crude fell by $3.45 to $83.89 per barrel, and US benchmark crude dropped $4.03 to $80.85 per barrel. However, these prices remain well above the pre-war level of around $70 per barrel.
Daniel Evans, global head of fuels and refining research at S&P Global Energy, noted that stranded tankers need to exit the strait, and new tankers must be brought in for loading. This requires confidence in a sufficiently safe window for entry, loading, and departure. Oil tankers move slowly, and the journey from the strait to distant countries, including delivery to refineries and final destinations, takes months.
Some Middle Eastern producers shut in oil extraction when storage space ran out. Restarting these operations is a slow process. Countries like Saudi Arabia and the United Arab Emirates, which have alternative pipelines or routes outside the Strait of Hormuz, may resume production more quickly. In contrast, Iraq, which experienced a larger shut-in and has more complex fields, could take about a year to return to normal levels, according to Alan Gelder, senior vice president at Wood Mackenzie.
Investment in the energy system halted after the strait's closure, and restarting it will take time. Daniel Sternoff, senior fellow at Columbia University's Center on Global Energy Policy, said countries that shut in production will not restart until they are confident in a stable, durable situation in the strait and a ceasefire lasting more than 30 or 60 days. "We don't know what 'open' means or what the speed of evacuation of trapped material is going to be," he added.
