Peace between the U.S. and Iran caused oil prices to plummet
The preliminary peace agreement between the U.S. and Iran has led to a sharp drop in oil and gas prices, but analysts warn that a rapid resumption of energy supplies to the global market should not be expected. The reasons for this include damaged infrastructure, logistical challenges, and threats to shipping.
Markets reacted immediately following announcements that an agreement had been reached between Washington and Tehran.
Oil and natural gas prices fell to their lowest levels since early March, and the price of benchmark Brent crude dropped below 80 euros per barrel. Consumers in Europe and Ukraine have already begun to feel the impact of lower prices.
However, experts emphasize that the positive effect may prove to be temporary. According to analysts’ estimates, the global market is falling short of about 12 million barrels of oil per day due to the conflict. Even under the most favorable scenario, the shortfall will shrink to only 2.6 million barrels per day by the end of August, and a full resumption of supplies from Iraq and Kuwait is not expected until December at the earliest.
“We are still far from emerging from the crisis,” noted Daniel Kral, chief economist at Oxford Economics.
One of the main obstacles to market stabilization remains the situation in the Strait of Hormuz, where large sections of the waterway were mined following the attacks. Experts estimate that the demining process could take anywhere from a few weeks to six months.
Due to the risks to shipping, insurance companies continue to maintain high insurance rates, which directly affects the final cost of energy.
“In this regard, today’s market reaction seems too good to be true,” says Carsten Brzeski, an economist at ING Bank.
According to him, the current optimism among investors is largely due to the fact that this is the first agreement officially confirmed by Tehran following a series of statements by U.S. President Donald Trump.
A survey of shipowners showed that resuming maritime transport will be difficult. In particular:
- most tanker owners are not prepared to return to the region if new tariffs are imposed;
- 118 loaded tankers remain stranded in the Persian Gulf;
- their return to these routes will be a one-time event rather than the start of a steady flow of shipments;
- the pace of transport recovery could be half that of pre-war levels.
The situation in the natural gas market remains even more complex. Even after tensions in the Middle East ease, Europe will continue to compete with Asian countries for liquefied natural gas (LNG) supplies.
Key risk factors include:
- damaged energy infrastructure, the restoration of which could take years;
- the need to quickly replenish gas storage facilities in the EU ahead of the winter season;
- the impact of the El Niño climate phenomenon, which is increasing energy demand in Asian countries;
- China’s active return to the global gas market to replenish its own reserves.
Experts predict that any increase in demand in Asia could quickly push gas prices back up to higher levels. Thus, while the peace agreement between the U.S. and Iran reduces the risks of further escalation, it does not eliminate the fundamental problems of the global energy market and resource shortages.
This is reported by Politico.
Global oil prices continued to fall on June 16 as market participants assessed the likelihood of a resumption of supplies through the strategically important Strait of Hormuz.
Oil prices are falling following the peace agreement between the U.S. and Iran — Reuters.
Oil prices fell following Trump’s statement on Iran — Reuters.
