A ceasefire is just the beginning; institutions: oil prices will remain above pre-war levels

Ask AI · What are the key obstacles to restoring oil tanker insurance after the ceasefire?

The US-Iran ceasefire makes it difficult to quickly repair the oil market; restarting oil fields and repairing facilities will take months, and Qatar’s LNG export facilities will require years. Although oil prices have fallen back, they are still higher than pre-war levels, and high oil prices and supply shortages may persist.

According to Axios, there are no shortcuts to resolving this the most severe oil market turmoil in history, and it is certainly no easy task — meaning major oil-importing countries will continue to face high prices and supply shortages.

After the US-Iran ceasefire agreement was reached, the most critical point to observe is: Will this provide enough certainty for oil tanker operators to restart large-scale transportation of crude oil, refined products, and other bulk commodities through the Strait of Hormuz?

“Trust-building measures in the coming days will be key to restoring shipping,” said Joseph Brusuelas, Chief Economist at RSM US, in an interview.

He pointed out that oil tanker insurance must be restored, which requires clear conditions Iran might impose — currently these conditions remain vague.

Iranian Foreign Minister Abbas Araghchi stated in a declaration that, through coordination with Iran’s armed forces and considering technical limitations, safe passage in the next two weeks will be possible.

The implied meaning is: Even setting aside what these “technical limitations” specifically refer to, oil supplies cannot simply return to pre-war levels.

“Restarting shut-down facilities and oil fields may take weeks to months,” said ClearView Energy Partners, a U.S. energy research and consulting firm, in a report.

Therefore, even if gas station prices slightly decline, there’s no need to get overly excited — this does not mean everything has returned to normal.

Clayton Seigle, an oil analyst at the Center for Strategic and International Studies, said: “I expect some shipowners and operators, possibly in cooperation with government representatives, will seek clear permission from Tehran before resuming operations.”

He added via email: “We will monitor ship tracking platforms and news reports on tanker movements to determine whether they have obtained passage permissions.”

Another major challenge is that, during the conflict, due to blocked export channels, Persian Gulf oil-producing countries have reduced output by millions of barrels per day.

Brusuelas said: “Restarting production itself is a significant engineering challenge.”

Additionally, many oil and refining facilities in the region were damaged during the war. He predicts that regional crude oil production and refining capacity will take 3 to 6 months to fully recover to pre-war levels.

Regarding natural gas, Qatar’s liquefied natural gas export facilities were damaged, and full repair could take years.

Following the ceasefire announcement and Trump’s abandonment of large-scale strikes, as of press time, U.S. benchmark crude oil prices plummeted about 14%, but remain well above pre-war levels.

All eyes will be on the progress of peace negotiations between the US and Iran during the two-week ceasefire period.

J.P. Morgan analysts warned Tuesday evening that, despite the possibility of further escalation and energy supply disruptions leading to soaring oil prices, “uncertainty has likely peaked.”

The bank believes: “In the coming months, oil prices are likely to stay above pre-war levels, but further upside is limited.”

Several Asian countries heavily dependent on the Strait of Hormuz for oil and gas have been forced to implement emergency fuel-saving measures. Even if shipping resumes immediately, a new batch of oil and gas will take days to weeks to reach these countries.

In the US, the American Automobile Association (AAA) reports that the current average gasoline price nationwide is $4.14 per gallon, the highest since 2022.

Patrick De Haan, head of petroleum analysis at GasBuddy, said on X platform after the ceasefire announcement that the national average could fall below $4 within 1 to 2 weeks.