Initial Agreement Could Reopen A Key Global Oil Route, But Energy Experts Warn High Prices And Supply Problems May Take Months To Ease
Initial agreement offers hope for global oil markets, but high gas prices, regional fighting and nuclear concerns remain unresolved.
The United States and Iran have reached an initial agreement that could end the Iran war, extend a shaky ceasefire and reopen the Strait of Hormuz, a critical waterway for the world’s oil and natural gas supply.
But relief for drivers, energy markets and the global economy is not expected to come overnight.
The agreement, announced Sunday and confirmed Monday, offers the first major sign of de-escalation after more than three months of fighting across the Middle East. Still, major challenges remain, including whether Israel will continue its offensive in Lebanon, whether Iran will follow through before the deal is formally signed and how quickly oil companies can restart operations after months of disruption.
Details of the deal were not immediately released. Mediator Pakistan said the agreement is expected to be signed Friday in Geneva. Iran’s deputy foreign minister, Kazem Gharibabadi, confirmed the agreement on state television but said Iran would not begin implementing it until the deal is signed.
President Donald Trump said he had authorized the Strait of Hormuz to open and the U.S. blockade of Iranian ports to end, though he later said the strait would not reopen until Friday.
Strait Of Hormuz Reopening Could Ease Pressure, But Not Immediately
Before the war, about one-fifth of the world’s oil and natural gas moved through the Strait of Hormuz. Early in the conflict, Iranian attacks on ships brought traffic through the waterway to a near standstill. Trump responded with a blockade.
Ships loaded with crude oil have been stranded in the Persian Gulf for more than three months, unable to safely travel through the strait. Even if the waterway fully reopens after the agreement is signed, energy experts say the effects will not be felt right away.
“It’s going to take time for people to feel comfortable and for insurance to be in place … particularly to get people on the ground to restart some of these assets,” said Daniel Evans, global head of fuels and refining research at S&P Global Energy.
Oil prices slipped early Monday after the agreement was announced. Brent crude, the international standard, fell $3.45 to $83.89 per barrel. U.S. benchmark crude dropped $4.03 to $80.85 per barrel.
Still, those prices remain well above the roughly $70 per barrel where oil traded before the war began.
Energy experts said the process of easing the supply crunch will be slow. Ships already loaded with crude oil must first leave the strait. Then new tankers must enter, load and safely exit. Evans said companies will need confidence that there is a large enough window of safety to move vessels in and out.
Oil tankers also move slowly. It can take months for crude oil to travel from the strait to distant countries, reach a refinery for processing and then move to its final destination.
Some Middle Eastern producers also paused oil extraction after running out of storage space, a process known as a shut-in. Restarting those operations can take time.
Countries such as Saudi Arabia and the United Arab Emirates, which have alternate pipelines or routes outside the Strait of Hormuz, may be able to resume production more quickly. But other countries could face a longer road.
“But places like Iraq could be much more challenged because they’ve had a much bigger shut-in, their fields are more difficult … it may well take about a year before they get back,” said Alan Gelder, senior vice president of refining, chemicals and oil markets at Wood Mackenzie.
Daniel Sternoff, a senior fellow at the Center on Global Energy Policy at Columbia University, said producers will likely want proof that the strait is stable and that the ceasefire will last longer than 30 or 60 days before fully restarting production.
“We don’t know what open means or what the speed of evacuation of trapped material is going to be,” Sternoff said.
Lebanon Fighting Could Threaten The Deal
The success of the agreement may depend heavily on what happens in Lebanon, where Israel is fighting Hezbollah, the Iranian-backed militant group.
Israel joined the United States in launching the war on Feb. 28 but is not part of the new deal. Israel’s defense minister said Monday that the country would not withdraw from land it has seized in Lebanon. A spokesman for Prime Minister Benjamin Netanyahu’s office said Israel will continue to defend itself against any threat.
That could threaten the agreement, since Iran has insisted that any deal to end the war must also include an end to the fighting in Lebanon.
Israel’s bombing of Beirut’s southern suburbs on Sunday nearly derailed the negotiations. A previous attack led Iran to fire on Israel, followed by Israeli retaliation.
Defense Minister Israel Katz said Israel plans to stay “indefinitely” in land it holds in Lebanon, Syria and the Gaza Strip. Katz also warned that if Iran attacks Israel over strikes in Lebanon, Israel will strike Iran with “great force.”
Nuclear Questions Still Loom
The agreement also leaves Iran’s nuclear program unresolved.
The deal gives the sides 60 days to decide what to do about Iran’s stockpile of highly enriched uranium and its nuclear program. The United States and Israel have long expressed concern that Iran could use its nuclear program to build an atomic weapon. Tehran has insisted its program is peaceful.
It took years for Iran and world powers to negotiate the 2015 nuclear agreement. Trump withdrew the United States from that accord during his first term, setting the stage for rising tensions that later grew into the current war.
The conflict has killed thousands across the Middle East, including top leaders of Iran’s theocracy, and has driven up prices for fuel, food and other basic goods well beyond the region.
World Leaders Welcome Deal With Caution
Despite the uncertainty, world leaders from Europe to China welcomed the initial agreement.
French President Emmanuel Macron, who is hosting Trump and other world leaders at a Group of Seven summit this week, said France and other Western partners are ready to move quickly to help restore normal shipping traffic in the strait once the United States and Iran agree to such a mission.
“We already have forces in the area,” Macron said, referring in part to France’s nuclear-powered aircraft carrier, the Charles de Gaulle.
Others urged caution. Luxembourg’s foreign minister, Xavier Bettel, noted that the agreement still has to survive the days leading up to Friday’s planned signing.
“It’s a long time till Friday,” Bettel said.
For now, the deal offers a possible path out of one of the most damaging conflicts in the region in years. But with energy markets still strained, ships still waiting, Lebanon still under fire and nuclear questions unresolved, the road from agreement to relief remains far from certain.
