Brent crude is nearing $90 a barrel as hopes of a quick US-Iran agreement to reopen the Strait of Hormuz fade. The move comes after oil prices had eased on expectations that an agreement could restore shipping through the key energy route.
Brent briefly touched $90 on Tuesday and was around $88.91 at 7.51am on Wednesday, August 12. Oil prices have risen again as uncertainty over a possible US-Iran deal grows.
Iran said a deal with Oman is close but has also stressed that an agreement would not necessarily mean the immediate reopening of the Strait of Hormuz. On Tuesday, Iranian Foreign Minister Abbas Araghchi met Pakistan’s Interior Minister Mohsin Naqvi in Tehran as Islamabad steps up mediation efforts aimed at ending the ongoing conflict between Iran and the United States.
Iran’s official IRNA news agency said the two officials discussed key diplomatic and bilateral issues, without providing further details. Tehran continues to demand changes in US policy, while Washington has resisted any arrangement that would leave Iran effectively controlling the waterway.
Brent had fallen below $80 earlier this month as investors anticipated an Iran-Oman arrangement. Prices then moved higher as hopes of a quick diplomatic breakthrough weakened.
Brent rose to $90.03 during Tuesday’s trading before easing back. On Wednesday, it was trading close to that level as concerns over supply routes remained elevated.
The concern is not only whether Hormuz reopens, but how quickly global energy and shipping networks can return to normal.
UBS has revived its global supply-chain stress analysis during the Middle East conflict after using a similar measure during the pandemic. Recent UBS research showed that supply-chain stress jumped sharply during the early months of the conflict.
Although the measure has fallen from its peak, that does not mean supply chains have returned to normal. It indicates that the pace of deterioration has eased.
The Strait of Hormuz disruption has also affected maritime transport. Shipping companies have faced higher fuel and insurance costs and have rerouted vessels. Container freight rates have risen sharply, while bunker fuel costs have also increased.
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Even if shipping through Hormuz resumes, companies will still have to reposition vessels, clear backlogs, replenish inventories, restore insurance coverage and rebuild transportation schedules.
The Strait normally carries roughly one-fifth of global oil consumption and a major share of global LNG trade. Any prolonged disruption therefore has consequences far beyond crude prices.
For oil markets, a reopening could ease the immediate supply pressure. But the wider effects on freight, inventories, insurance and manufacturing could take much longer to unwind. That is why the current shock may continue even after the waterway begins operating normally again.