When Will Shipping Bounce Back in the Strait of Hormuz?

As the U.S. and Iran signal their willingness to sign a ceasefire agreement, which is expected to result in the reopening of the Strait of Hormuz, importers worldwide are wondering when shipping traffic will fully resume. The general consensus, among analysts, is that it could take months for traffic in the strait to reach prewar levels (The Wall Street Journal, subscription).

The current situation: Crude oil has been moving through the strait more freely even before this deal was announced, but only slightly. 

• “On average, about 10 ships transited the strait a day in the first week of June, according to commodities- and shipping-data provider Kpler, still far below the 100 or more a day before the war.”
• President Trump said on Monday that ships have resumed travel through the strait but added that it won’t be “completely” open until Friday. However, major shipping firms told The New York Times that they had not yet allowed their ships to begin the journey (The New York Times, subscription).

The forecast: “It could take several weeks for traffic to return to 30% to 50% of prewar levels, or roughly 30 to 50 ships a day, said Eurasia Group, a consulting firm.” The first ships to move through will be those confined to the region since February.

• Another source of concern: no one knows what Iran might require of ships seeking to travel through the strait. On Monday, it suggested that it would charge “fees” for passage (The New York Times, subscription).

The commodities: Once ships can transit the strait again, producers in the Gulf can reopen oil and gas fields, itself a lengthy process that will be compounded by damage to certain facilities from Iranian attacks. But what does that mean for countries with dwindling reserves?

• “After traffic picks up, another 52 days are needed for oil to arrive at far-off buyers in Asia and get refined, according to Michael Haigh, head of commodities research at Société Générale.”
• That means countries will still be relying on their existing inventories in July and August, another several weeks of depletion.
• With Middle East crude production more than 11 million barrels below prewar levels, recovery could take four to six months, according to analysts.

In the U.S.: The U.S. oil market could take months to bounce back even after the strait reopens, according to industry leaders.

• Meanwhile, “​Since late March, the U.S. has drawn about 66 million barrels from the Strategic Petroleum Reserve, out of 172 million barrels authorized by the Trump administration. At the current pace, that allotment could run out in early September, leaving the reserve at about 243 million barrels, far below its 2009 peak of more than 700 million barrels.”