As the US and Iran head for peace talks, very few ships are leaving the Gulf

Ed Crooks, Vice-Chair, Americas, Wood Mackenzie

The latest joke about the Strait of Hormuz is that it is Schrödinger's waterway: it is simultaneously open and closed, until you try to sail through it and find out for certain which it is. Over the weekend, several vessels put that question to the test and were given their answer: the strait is still mostly closed.

Despite recent encouraging signs of a possible end to the conflict in the Middle East, the US and Iran remain some distance apart on terms for a lasting peace agreement. The threat of prolonged disruption to energy and chemicals exports from the Gulf has grown.

Hopes of an end to the war had been rising. The US, Israel and Iran announced a two-week ceasefire on 7 April, followed last week by a 10-day pause in the fighting in Lebanon.

However, over the weekend two Indian ships – a tanker and a bulk carrier – were forced to turn back after coming under fire from Iranian forces while attempting to pass through the Strait of Hormuz.

Iran’s Islamic Revolutionary Guard Corps (IRGC) issued a statement on Saturday warning vessels not to move in the Persian Gulf or the Sea of Oman. “Approaching the Strait of Hormuz will be considered co-operation with the enemy, and the offending vessel will be targeted,” it said.

After the ceasefire announcements two weeks ago, there had been a small upturn in the number of vessels passing through the strait. Last week about 20 vessels transited each day, according to Wood Mackenzie’s VesselTracker service: more than before the ceasefire, but still well short of the 170 or so a day that passed through in February.

Now even that small step towards reopening seems to have been reversed. Although a few vessels passed through on Saturday, there was very little movement on Sunday.

The result for oil, gas and chemicals markets is that the disruption caused by the conflict is not over, and could still get worse.

Oil futures prices have been reflecting hopes that the strait could be reopened soon. When the ceasefire was first announced on 7 April, the June contract for Brent crude dropped about 14%, from around US$110 a barrel to below US$95 a barrel. At one point last Friday it went down to just over US$86 a barrel.

But when the market re-opened in Asia on Monday morning, prices rebounded again. At the time of writing, the June contract for Brent is trading at about US$95 a barrel, up 5% from its close on Friday.

European gas prices also rose sharply on Monday. Benchmark TTF futures for June hit €61.5 per megawatt hour, roughly equivalent to US$21 per million British thermal units, although they later fell back to around €40 per megawatt hour.

The efforts to reach a peace agreement are continuing. Vice President JD Vance is leading a US delegation to Islamabad, Pakistan, for another round of talks.

Iran’s leaders were initially noncommittal about whether they would take part, but by Monday were reported to have agreed to resume negotiations.

However, the rhetoric from both sides became more confrontational over the weekend. President Donald Trump told Fox News on Sunday that if Iran did not sign a peace deal with the US, “the whole country is getting blown up”.  He added that Iran’s bridges and power plants would be targeted.

The US has been tightening its blockade of Iran-linked vessels in the Gulf of Oman, outside the Strait of Hormuz. On Sunday, the US Navy fired on and seized a cargo ship that had been attempting to reach Iran.

Mohammad Reza Aref, Iran’s First Vice President, posted on Sunday: “One cannot restrict Iran’s oil exports while expecting free security for others. The choice is clear: either a free oil market for all, or the risk of significant costs for everyone.”

Tasnim, the Iranian news agency linked to the IRGC, listed areas that would “enter the conflict zone” if the war resumes. They included the Bab al Mandeb Strait at the mouth of the Red Sea, Saudi Aramco, and the oil ports of Yanbu in Saudi Arabia and Fujairah in the UAE, used to bypass the Strait of Hormuz.

Countries around the world that have been struggling with fuel shortages and rising prices face the threat of worsening disruption.

Claudio Descalzi, chief executive of Italy’s Eni, last week described the disruption in the Gulf as “the most important event in the last 40 years” for oil supply.

“Last weekend we had 600 service stations where diesel was out of stock,” he said. “If 600 Eni stations remain without diesel, there is a possible problem… We are in a situation where either you have the capacity to produce what you need, or you are at risk.”

The Wood Mackenzie view

In a webinar last week, Wood Mackenzie discussed prospects for global energy markets if the ceasefire held and ships were able to move freely through the Strait of Hormuz again.

Alan Gelder, senior vice president for refining, chemicals and oil markets, said that if there was a peace agreement, some tankers could start to move very soon. But it would probably take until the end of June for normal traffic through the strait to be fully restored.

The picture for LNG exports from the Gulf is similar. A peace agreement would lead to an initial rush of vessels that are already laden or can load from storage, but a return to full operation would take a little longer.

Massimo Di Odoardo, vice president for gas and LNG research, said restoring production from LNG facilities in Qatar would take about three or four weeks for the South complex, but it will take longer to bring back trains that were not damaged by Iranian attacks in the North complex.

The flare-up of tensions between the US and Iran puts those timelines into doubt. The longer the Strait of Hormuz remains closed, the greater the risk that only a global recession can curb world oil demand to match supply.

In 2026 so far, the spot price of Brent crude has averaged about US$85 a barrel. Peter Martin, Wood Mackenzie’s head of economics, says that a Brent price of about US$90 a barrel through the year would drive global GDP growth down below 2%. That starts to enter recession territory.

“We’re on that precipice,” Martin said. “Something needs to change to get off this path toward global recession.”

In brief

Maine has become the first US state where the legislature has voted for a ban on building new data centres. The state’s House and Senate last week backed a bill that would prevent municipalities and state agencies approving the development, construction or operation of new data centres with a power demand of 20 megawatts or more. Janet Mills, the state’s governor, had last week not yet decided whether to sign the bill into law.

Lawmakers also voted for the creation of a new Maine Data Center Coordination Council, which would evaluate issues relating to existing or proposed data centres, with the goals of protecting ratepayers, maintaining the reliability of the power grid, minimising environmental impacts and enabling economic development.

Maine is one of about 12 US states where the legislatures have been considering restrictions on data centre development. Fears that the infrastructure needed to power data centres will drive up household electricity bills have driven the issue up the political agenda.

The first small modular reactors (SMRs) planned for the UK have taken an important step forward. Rolls-Royce, which will manufacture the reactors, has signed a contract with the government-owned company Great British Energy – Nuclear (GBE-N) that will support design work on the planned site at Wylfa in north Wales, and allow it to order long lead-time equipment. The site is intended to take three 470-megawatt reactors, giving the plant a total capacity of more than 1,400 MW.

Original article   l   KeyFacts Energy Industry Directory: Wood Mackenzie