Hormuz Shipping May Take Months to Normalize, Global Inflation Could Last Until Year-End

Shipping through the Strait of Hormuz may require several months to normalize, despite a recent agreement between the U.S. and Iran to resume transit. Analysts caution that the process of demining, repairing oil and gas facilities, and restoring confidence among shipowners, insurers, and refiners will take considerable time.

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clearing mines, insurance costs, port congestion, and geopolitical risks could make oil transport much slower than the media reports.

Many buyers have already established alternative supply chains and transport routes to circumvent the blockade. This means that even with the resumption of shipping, the strait's traffic may not return to pre-blockade levels for months. Economists and industry experts predict that the disruption, which lasted 3.5 months, will lead to sustained high inflation and supply chain tightness extending to the end of the year.

While oil futures saw a significant drop following the news, with Brent crude falling 5% and West Texas Intermediate down 5.4%, experts like Tony Sycamore from IG Australia suggest that substantial price decreases are unlikely in the short term. Countries will likely use the reopening to replenish strategic oil reserves. Charu Chanana, Chief Investment Strategist at Saxo Financial, noted that the reality of reopening is complex, with demining, insurance costs, port congestion, and geopolitical risks potentially slowing down oil transport more than reported.

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the market often sees a reopening as flipping a switch, but in reality, it's more of a process; the physical movement might resume quickly, but trust usually doesn't.

Haris Khurshid, Chief Investment Officer at Karobaar Capital, emphasized that reopening is a process, not an instant switch. He stated that while physical movement might resume quickly, trust takes longer to rebuild. Priyanka Sachdeva, an analyst at Phillip Nova, added that the economic impact of soaring energy costs on importing economies over the past months will not be repaired overnight, in addition to the physical damage to oil infrastructure.

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the damage will not be repaired overnight, and this includes not only the actual damage to oil infrastructure but also the economic impact on oil-importing economies from soaring energy costs over the past months.