US-Iran talks resume as fuel cost threat lingers

Markets are cautiously optimistic after the US-Iran ceasefire held over the weekend, with oil prices dipping from near $100 a barrel and US stocks nearing record highs. Yet analysts caution that the energy crisis is far from resolved, with $5 gas prices still a possibility this summer. The situation hinges on two key factors: a concrete agreement to end the war and the reopening of the Strait of Hormuz, a critical shipping route that has remained blocked since the conflict began.

“Nothing has fundamentally changed,” said Rory Johnston, an oil market researcher. “The strait remains closed.” Tehran’s reluctance to reopen the waterway stems from its role as a leverage tool, Johnston explained. Opening it would weaken Iran’s bargaining position, he added. This hesitation has left traders wary, as any deal must include clear steps to restore unrestricted shipping through the strait.

Even if the strait reopens, skepticism remains about the pace of recovery. Sultan Al Jaber, CEO of Abu Dhabi’s state oil company ADNOC, warned that full pre-war shipping levels won’t return until mid-2027. Even reaching 80% of previous flows would take four months, he said. The Gulf’s major players share these concerns, with some questioning whether the ceasefire can hold amid ongoing tensions.

Recent developments underscore the fragility of it. US forces launched strikes targeting Iranian boats near the strait, citing efforts to place mines. These actions highlight the risks for vessels trying to transit the waterway, even as both sides claim progress in negotiations. Meanwhile, Brent crude oil futures surged 4% on Tuesday, signaling market uncertainty despite earlier declines.

Analysts warn that even in the best-case scenario, the energy system has already suffered significant damage. Over 1.2 billion barrels of oil have been disrupted by the war, according to S&P Global Energy. With summer driving season underway, demand is rising while supply remains constrained. “The math is brutal,” said Bob McNally of Rapidan Energy Group. “A fundamental tightening of the market is baked in.”

McNally predicts Brent crude could return to $120 or $130 a barrel, with US gas prices nearing the 2022 record of $5.02 a gallon. Current prices hover around $4.50 a gallon, up from $2.98 when the conflict began. If the strait stays closed for another month, Johnston said, gas prices will likely surpass previous highs. “Even if the conflict ends today, it will still take months to normalize flows,” he added.

Industry experts agree that pre-war energy prices are unlikely to return unless there’s a broader economic collapse. JPMorgan forecasts Brent crude to average $104 a barrel in the third quarter and $98 in the fourth. Kevin Book of ClearView Energy Partners noted that while de-mining and restarting production could happen within weeks, full recovery will take years. “We’re not expecting $60-a-barrel oil anytime soon,” he said. “Supply will take a while to return.”