It may take months for shipping in the Strait of Hormuz to return to normal

It may take months for shipping in the Strait of Hormuz to return to normal. (Reuters)

[Compiled by Wei Guojin/Taipei Report] The United States and Iran reached an agreement to resume shipping in the Strait of Hormuz this week. The crude oil market responded enthusiastically yesterday. However, analysts warned that mine clearance, repair of oil and gas facilities, and the rebuilding of confidence among shipowners, insurance companies, and refiners will take longer. Many buyers have also responded to the blockade of Hormuz through crude oil alternative supply chains and transportation routes. Therefore, it may take several months for shipping in the Strait to return to pre-war normal levels.

Economists and industry experts warn that since trade flows in the Strait of Hormuz have been disrupted for 3.5 months, it will take a long time for global markets to return to normal, which means that high inflation and supply chain tensions may continue until the end of this year.

Brent crude oil futures for July delivery plunged 5% to US$82.94 a barrel yesterday, and West Texas Intermediate crude oil fell 5.4% to US$80.26, both hitting their lowest levels since March 10. Oil prices fell more than 3% last Friday.

IG Australia market analyst Tony Sycamore pointed out that it is difficult for crude oil prices to fall significantly in the short term, and countries will use the restart of Homez to replenish their sharply reduced strategic oil reserves. In addition, in anticipation of the agreement being reached, oil prices have fallen sharply in the past few trading days.

Charu Chanana, chief investment officer of Saxo Financial, said that even though the market is applauding the restart of Homez, the actual situation is more chaotic. "Made clearing, insurance costs, port congestion, and geopolitical risks may make crude oil transportation much slower than reported by the media."

Haris Khurshid, chief investment officer at Karobaar Capital in Chicago, said the market often views reopening as flipping a switch, but "actually it is more like a process; the flow of physical goods may recover quickly, but trust usually does not."

He added that the reopening of the Strait of Hormuz and the normalization of trade flows are two different things. Many buyers have spent many months securing alternative oil transportation routes, suppliers and inventories. After the restart of Hormuz, they may not immediately return to the Hormuz route.

Priyanka Sachdeva, an analyst at Phillip Nova, pointed out that "although the conflict may end and the flow of crude oil in the Strait of Hormuz may gradually return to normal, the damage will not be repaired overnight. This includes not only the actual damage to crude oil infrastructure, but also the economic shock suffered by crude oil importing economies due to soaring energy costs for several months."