Crude oil prices fell sharply Sunday evening in the first major market reaction to signs of a possible agreement to ease tensions between the US and Iran, raising cautious hopes that disruptions in the Strait of Hormuz could eventually begin to ease.
Global benchmark Brent crude dropped by roughly USD $5 per barrel to around US$98.76, down 4.62 per cent from Friday’s close, after tentative outlines of a potential deal emerged over the weekend, reports Axios.
The decline marks the first significant sign of relief for energy markets which have been hammered due to months of conflict, shipping disruptions and investor insecurity amid supply shortages.
Nonetheless, analysts have warned that even if a deal is reached, heavy damage has already been inflicted to global energy flows post Strait of Hormuz blockade, and even if it reopens, healing that damage would take months, if not years.
According to the International Energy Agency, around 14 million barrels of oil per day were effectively blocked from normal movement through the region as of mid-May.
While Saudi Arabia and the UAE have increased use of alternative pipeline routes bypassing Hormuz, analysts say those measures only offset a fraction of the disrupted supply.
Several Gulf producers have also reduced output after storage facilities filled up during the crisis, and restarting full production will take time even if shipping lanes reopen.
Patrick De Haan, head of petroleum analysis at GasBuddy, said falling crude prices alone would not immediately translate into relief for consumers.
“Gas prices are currently falling but until we see an agreement signed and a significant amount of ships transit through the Strait, the national average price of gasoline will likely remain well above US$4 per gallon,” he wrote on X.
Analysts also cautioned that shipping companies may remain reluctant to rapidly resume large-scale transport through the waterway until security conditions stabilise.
Research firm ClearView Energy Partners warned that de-mining operations, clearing stranded tankers and restarting production infrastructure could take “weeks to months”, while repairing damaged facilities and rebuilding depleted inventories may require “multiple calendar quarters to years”.
