Trump says oil prices will drop like a rock. It’ll be more like a feather
A peace deal framework between Iran and international parties, set to be signed this Friday, faces significant hurdles in restoring global energy markets to pre-war conditions. While President Donald Trump has promised that energy prices will “drop like a rock” upon the reopening of the Strait of Hormuz, energy analysts and industry experts warn that physical obstacles, infrastructure damage, and the necessity of refilling emergency reserves could keep prices elevated for years.
The Strait of Hormuz currently holds approximately 200 million barrels of oil trapped on tankers that have been unable to transit the waterway since late February.
Operational Challenges in the Strait of Hormuz
The immediate reopening of the strait is not a simple logistical process. According to Jakob Larsen, safety and security officer at BIMCO, the presence of mines planted by Iran creates a severe bottleneck, forcing vessels to navigate narrow passageways near the coasts of Iran and Oman. The U.S. Navy must perform a time-consuming search-and-deactivation process to clear these mines, a task that Larsen estimates could take several weeks.
Even after the mines are cleared, shipping capacity will not return to normal immediately. Vikas Dwivedi, global oil and gas strategist at Macquarie Group, notes that while dozens of vessels are currently waiting nearby, it could take 30 days to coordinate the necessary traffic. Furthermore, Niels Rasmussen of BIMCO warns that full, stable operations may take two months, with some analysts like Kieran Tompkins of Capital Economics suggesting that a complete recovery could take as long as six months.
The Reality of Post-War Oil Production
Returning to pre-war production levels involves complex engineering rather than a simple restart of operations. Middle Eastern oil wells that were shut down during the conflict cannot be switched on instantaneously, and producers face a capacity crunch. As Dwivedi explains, onshore storage tanks are currently at 80% capacity, leaving little room for new production to be processed or stored.
There is also uncertainty regarding the output quality of these wells. Dan Pickering, founder and chief investment officer at Pickering Energy Partners, notes that it is unclear if wells will return to their previous production capacity once the valves are reopened. Because of these technical and storage constraints, experts do not anticipate a return to pre-war gasoline prices, such as $2.85 per gallon.
The disconnect between short-term price drops and long-term futures contracts signals that the market is pricing in structural, rather than just temporary, volatility. While the initial peace announcement has triggered a decline in front-month prices, the failure of long-term futures to move suggests that the global energy sector expects a multi-year recovery period. The primary pressure is not just the flow of oil, but the massive, price-insensitive demand expected when nations begin the multi-billion-barrel task of replenishing depleted emergency reserves.
Long-Term Price Factors
Beyond the immediate logistical and production hurdles, long-term infrastructure needs will continue to influence the market. Refineries in the region require damage assessments and repairs that could take years to complete. Additionally, global emergency oil reserves, which have been significantly drained, must be refilled.
Pickering estimates that the effort to refill these reserves will require the purchase of approximately 1 billion barrels of crude—roughly 1 million barrels per day—regardless of the price. While the market may see a temporary drop in prices due to an initial surge in supply, analysts expect this massive, sustained demand to create a high price floor for the next several years.
Frequently Asked Questions
Why won’t oil prices immediately return to pre-war levels?
Market experts point to several factors, including the time required to clear mines from the Strait of Hormuz, the complex engineering required to restart shut-down oil wells, and the need to refill global emergency reserves, which will create sustained demand for years.
How long will it take for the Strait of Hormuz to function normally?
Estimates vary among experts. While BIMCO analysts suggest a two-month window for a return to normal operations, other commodities experts, such as Kieran Tompkins of Capital Economics, suggest a full recovery could take up to six months.
What is the impact of the current state of oil storage?
Onshore oil inventories are currently filled near capacity. According to Vikas Dwivedi, this creates a bottleneck that will delay the ability of producers to ramp up output, as there is little physical space to accommodate new production.
How do you think the global market will react if regional tensions flare up again after the peace deal is signed?