Trump says Strait of Hormuz will be 'completely open' by Friday. Then what?

The Strait of Hormuz is poised to reopen this week, potentially ending a more than three-month disruption that halted nearly a fifth of the world's oil shipments. U.S. President Donald Trump reiterated assurances at the G7 summit that the vital passage will be "completely opened" by Friday, coinciding with the in-person signing of a ceasefire agreement with Iran.

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The globally significant passage will be "completely opened" by Friday, when the ceasefire agreement with Iran is signed in person.

An agreement has been reached between Iran and the Trump administration to end the conflict and reopen the strait, which Washington stated was electronically signed over the weekend. Trump declared "Let the oil flow!" on social media, signaling the end of the "toll free" closure that had caused the largest energy supply disruption in modern history. This halt removed hundreds of millions of barrels of oil from the global market, sending Brent crude oil prices soaring from below $70 per barrel in February to a peak of over $120 in April.

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Let the oil flow!

Despite the impending reopening, experts caution that oil prices are unlikely to drop to pre-war levels immediately. Saul Kavonic, a senior energy analyst at MST Financial, estimates that it could take three to six months for shipping to fully resume even in the best-case scenario. Oil producers face the challenge of restarting production, repairing damaged infrastructure, and exporting existing oil stocks before new production can commence. Kavonic noted that "empty ships need to enter the strait and load current stocks to make room before production can resume, which can take over a month."

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Oil producers cannot restart production at the flick of a switch, and it might be some time before the effects trickle through to Australia.

Economists also point to logistical hurdles in resuming normal shipping patterns. Hamad Hussain, an economist at Capital Economics, explained that vessels diverted during the closure will need to return to the Gulf to resume oil transport. Before the conflict, over 100 commercial ships passed through the strait daily. My Bui, an economist at AMP, anticipates that while spot prices might see some relief in a few weeks, oil futures are likely to drop more quickly due to the expectation of the strait's reopening. However, Kavonic warned that prices could remain significantly above pre-war levels for several years, even under optimistic scenarios.

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Empty ships need to enter the strait and load current stocks to make room before production can resume, which can take over a month.