Hormuz May Reopen, but the Oil Shock Is Far From Over

In recent months, alongside the rally in AI-related stocks, investors’ attention has been largely focused on U.S.-Iran tensions and, in particular, the Strait of Hormuz, which have affected the broader market, major indices such as the S&P 500, and especially oil prices.

Headlines continue to flow, with each new development seemingly offsetting the previous one. While negotiations currently underway between the U.S. and Iran appear to be making progress toward a framework for a settlement, volatility in energy-related shares remains high and appears ready to swing either way in response to both actual developments and shifts in market perception.

Therefore, it is imperative to clarify one very important issue: even if a peace agreement is reached immediately, the current crisis is resolved, and the Strait of Hormuz (arguably the most critical energy chokepoint in the world) returns to normal levels of traffic, it will likely take many months for oil and natural gas supplies to recover to their pre-crisis levels.

According to the latest Short-Term Energy Outlook published by the U.S. Energy Information Administration (EIA), the estimated rate of decline in global oil inventories averaged 8.5 million barrels per day during 2Q26. The pace at which inventories are declining is extremely fast and indicates that the global oil market is operating in a severe physical deficit. Notably, that estimate is predicated on an optimistic assumption regarding the resumption of traffic through the Strait of Hormuz beginning in June. Under the same scenario, the EIA projects Brent crude oil prices to average approximately $106 per barrel during May and June.

WTI oil prices remain relatively more insulated thanks to North America's greater logistical resilience. Even so, they remain near levels the market is treating as a near-term tactical support zone. The psychological $100 threshold remains the first resistance level, while the $105–106 range broadly matches the band implied by the EIA scenario.

Currently, available oil supply cannot satisfy existing demand, and so the system is attempting to compensate by draining its inventories. At such a rapid rate of depletion, when inventories drop like they do today, the market becomes much more susceptible to logistical disruptions, additional shocks, and increasing shipping and insurance costs.

While easing of tensions may result in a reduction in the short-term geopolitical premium associated with energy assets, neither a normalisation of the physical market, nor the stabilisation of energy asset values is likely to occur simultaneously. Time will be required to restore inventories, typically weeks or months depending upon the degree of damage done to energy infrastructure in the affected regions.

Another important consideration is that the war has caused not only slowdowns and stoppages of cargo traffic through the Strait of Hormuz, but has also damaged portions of the regional energy infrastructure. Therefore, both the speed at which refineries, storage facilities, and producing fields resume operations and the extent of their recovery will be important.

The Director General of the International Energy Agency (IEA) recently stated that the recovery process will be both long and uneven globally, with countries such as Iraq expected to face particular challenges due to limited storage facilities and the complex nature of restarting shut-in wells.

The United Arab Emirates' withdrawal from OPEC+, effective May 1, 2026, removes the country from quota restrictions, allowing for increased production levels once conditions in the Gulf become normalised again. Given that the UAE possesses considerable excess capacity compared to other major producing nations, an expansion in overall global supply levels could provide a needed building block for replenishing lost inventories as soon as export capabilities become fully restored.

Increased output levels could also encourage other countries to reconsider their OPEC and/or OPEC+ membership, potentially contributing to a long-term weakening of OPEC's role as a coordinated supply source. Such an eventuality could create a structurally bearish condition within the oil market.

However, in the short to intermediate term, the focus should continue to centre on inventory levels — and how quickly those inventories are declining — since these two factors represent the largest influence on both commodity prices and equity prices related directly or indirectly to commodities. Any decrease in prices generated by an actual peace agreement will likely prove to be only a short-lived reprieve.