As momentum appears to be building for a peace deal between the United States and Iran, hopes are also rising that the serious economic impact of the conflict will be alleviated.
Much uncertainty remains about the exact status of negotiations and the specific terms of any agreement, including around the Strait of Hormuz, a critical waterway through which much of the world’s oil supplies pass.
But if this is really, really the end of the war and the Straits are about to reopen, what happens next? When will prices return to pre-war levels?
It’s not possible right away.
First, it’s a logistical nightmare. Once the Strait does reopen, a complex, multi-step process will need to unfold, including decontaminating existing bottlenecks in the Strait, drawing down stockpiles, restarting production, and making repairs.
What will happen to oil and gas prices? Traders have repeatedly tested a new floor for oil prices, but they have not settled below $94 a barrel since mid-March. Brent crude oil futures settled at just over $100 a barrel on Friday and could test the floor when trading resumes Monday evening if traders are optimistic about peace progress.
JPMorgan analysts expect the strait to open by early June and expect oil prices to average $97 a barrel through the rest of the year.
Michael Green, chief strategist at Simplify Asset Management, said historically Brent needs to be in the $60 range at $3 a gallon of gas. Futures markets currently don’t expect that to happen until 2032.
The longer this peace lasts and the more evidence that production is restarting, the more oil prices could fall.
However, there are many “what ifs”.
Read the full breakdown of potential impacts.
