Middle East and North Africa

Regardless of how close the United States and Iran really are to a durable peace agreement, or what the exact conditions of it will be, the war’s disruptions to global energy markets are all but guaranteed to persist for months, likely into next year.

The lingering challenges for the oil and natural gas markets (and a host of other commodities, from helium to fertilizer) boil down to three main issues: flows, stocks, and production. The region won’t produce as much energy as it did before the war. It will take ages to get what oil and gas is there to start flowing to global markets again. And the sheer size of the cumulative disruption to energy markets has baked in months of continued pain, no matter what kind of near-term agreement is reached.

Regardless of how close the United States and Iran really are to a durable peace agreement, or what the exact conditions of it will be, the war’s disruptions to global energy markets are all but guaranteed to persist for months, likely into next year.

The lingering challenges for the oil and natural gas markets (and a host of other commodities, from helium to fertilizer) boil down to three main issues: flows, stocks, and production. The region won’t produce as much energy as it did before the war. It will take ages to get what oil and gas is there to start flowing to global markets again. And the sheer size of the cumulative disruption to energy markets has baked in months of continued pain, no matter what kind of near-term agreement is reached.

In practical terms, that likely means that oil and gas prices will continue to increase over the summer—not suddenly plummet as the Trump administration has predicted. As the head of Chevron said this week, the lack of shock absorbers remaining in the global energy system will spell rising prices through the peak driving season. That industry outlook contrasts with the sanguine approach still taken by oil traders, who have pushed the benchmark price of crude oil steadily lower in the hopes of a U.S.-Iran deal. 

“Navigating this process [of opening the Strait of Hormuz] will take months if everything goes smoothly. An interim deal could turn a trickle [of exports] into a stream. In the meantime, energy flows through the strait will remain severely constrained. The world will have no choice but to exhaust fast depleting inventories—ending prices higher,” said Matthew Reed, the vice president of Foreign Reports, an energy consultancy specializing in the Middle East.

Reopening the Strait of Hormuz, which was fully open before U.S. President Donald Trump began........

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