Oil prices have retreated to levels seen before the recent conflict, but analysts are warning that the market may be underestimating persistent supply risks and robust restocking demand, which could trigger a rebound.
Key Points
Shipping traffic through the Strait of Hormuz is unlikely to quickly return to pre-war levels due to unclear ceasefire details, rising insurance costs, and the threat of sea mines.
Strategists note that Iran is likely to continue leveraging its influence over this critical energy chokepoint to seek greater control over vessel passage.
While oil has fallen back to around $70 per barrel, analysts caution the market may be overlooking ongoing shipping risks and the demand for crude to replenish severely depleted inventories.
In recent weeks, oil prices have dropped significantly, nearing pre-conflict levels, influenced by a fragile US-Iran ceasefire and diplomatic efforts to secure a lasting peace.
However, commodity strategists warned on Monday that current prices reflect an overly optimistic market view, with various long-term supply-side challenges being underestimated.
Analysts believe that even if shipping activity picks up post-ceasefire, vessel traffic through the Strait of Hormuz will struggle to rapidly recover to its former scale, as Iran seeks to assert its authority over this key shipping lane.
Slow Recovery in Hormuz Strait Traffic
Nikos Petrakakos, Managing Director of Investments at Tafton Investment Management, stated that many shipping companies remain cautious about routing vessels through this energy chokepoint. Primary concerns include uncertainty over the peace framework, unresolved mine threats, and a significant increase in war risk insurance premiums.
"While there's been a slight uptick in activity, overall shipping volumes are nowhere near pre-war levels," Petrakakos said in an interview.
As of 8:42 AM ET on Monday, the international benchmark Brent crude futures were trading at $72.45 per barrel, down from a peak above $188 per barrel during the height of the conflict in late April.
Amrita Sen, Founder and Director of Research at Energy Aspects, said the market is underestimating the significant gap between current shipping conditions and the pre-war normal state.
Although previously trapped vessels are now gradually transiting the strait, the bigger challenge is convincing shipping firms to reroute their vessels back through these waters. "Shipping costs remain high, and there are still very few operators willing to return to this route," she noted.
Sanctions Risk Poses Chain of Complications
Strategists believe a formal vessel transit toll system in the Strait of Hormuz is unlikely, but Iran will likely continue to push for some degree of control over shipping movements.
Petrakakos explained that current Iranian transit fees and coordination arrangements are temporary, with most shipping firms avoiding direct engagement with Iran for fear of crossing sanctions red lines.
He stated that the shipping industry cannot establish formalized transit coordination with Iran, as such cooperation is fraught with risk and could lead to penalties. Some operators are resorting to covert methods to avoid scrutiny, such as turning off transponders to hide their vessels' real-time locations.
"Before the war, Iran had almost no control over vessels passing through the Strait of Hormuz. That paradigm has completely changed, and Iran will not revert to the old status quo," Petrakakos said.
He analyzed that Iran aims to secure coordination and control over vessel passage, similar to the management models of the Suez and Panama Canals.
However, Amrita Sen stated that Gulf Cooperation Council members and Western firms would never accept an official transit toll mechanism, arguing that Iran's push for fees is essentially a means to raise funds for post-war reconstruction.
"Iran is aggressively using its geopolitical leverage to assert control over the strait, particularly the southern channel. Western companies will absolutely not pay this transit fee."
Even as vessels stranded in and around the strait gradually depart, insurers remain reluctant to easily provide coverage for ships carrying cargo through the passage.
Petrakakos said it will take the insurance market at least several months to gradually relax underwriting conditions and lower premiums, with caution also maintained due to Houthi attacks in the Red Sea.
"Insurers need to be sure the ceasefire is not just on paper, that the agreement is being implemented and will remain stable long-term, before shipping fully resumes and premiums come down."
Market Enters Inventory Restocking Cycle
Petrakakos cautioned that oil and gas tankers may not be prioritized for strait passage, as container ships carrying high-value finished goods also hold strategic and commercial importance.
For dry bulk carriers transporting lower-value commodities, where insurance costs represent a smaller proportion of cargo value, shipping companies' risk calculations differ.
Aldo Spanjers, Head of Commodity Strategy at BNP Paribas, stated that Iran's geopolitical influence in the Strait of Hormuz remains a core variable affecting the crude oil market.
"My baseline expectation is that Iran will most likely not implement an official transit toll as a form of control. Their core demand is revenue, which can be achieved through other means," he said.
The crude market's focus has shifted from sudden supply disruptions to how quickly depleted commercial crude inventories can be replenished.
"The core market logic now is: how to fill the exhausted crude stocks? Every crude-importing nation globally is actively increasing reserves."
Spanjers maintained his year-end oil price forecast of $80 per barrel, stating that restocking demand can absorb new crude supply, supporting a modest price rebound, with international oil prices expected to trade within a range.
He predicts a trading range of $75 to $85 per barrel for Brent crude in 2027. Once global crude inventories are replenished, the upside for oil prices will narrow, and the market will likely return to a contango structure where spot prices are lower than forward prices.
"It will be difficult for prices to break above $85, as restocking appetite would significantly decline at those levels. Similarly, it's hard to fall below $75, as there is always substantial speculative buying demand on dips."
Comments