Strait of Hormuz on the Verge of Opening: When Will Global Energy Market Supply Return to Expectations?

    According to CCTV News, Nasser Kanaani, Spokesperson of the Iranian Ministry of Foreign Affairs, stated on local time 18th that the text of the memorandum of understanding (MoU) between Iran and the United States has been finalized and officially signed by both parties.

    "The MoU stipulates that following its signing, the United States will immediately begin lifting its maritime blockade against Iran and cease all interference or obstruction, and fully end the maritime blockade within 30 days. During this period, vessel traffic will return to pre-conflict levels. In addition, the United States has pledged to withdraw its military forces from areas surrounding Iran within 30 days after the final agreement is reached."

    "Upon signing the MoU, Iran will make utmost efforts to put in place arrangements allowing commercial ships to pass freely and safely from the Persian Gulf to the Sea of Oman, and vice versa, for a limited period of 60 days. Commercial shipping will commence immediately. Taking into account necessary work such as the removal of technical and military obstacles and mine clearance by Iran, normal navigation will resume within 30 days."
   

    "Iran will hold discussions with Oman on the future management and maritime service mechanisms of the Strait of Hormuz, and exchange views with other coastal states of the Persian Gulf in accordance with applicable international law and the sovereign rights of the coastal states of the Strait."

    However, even if the Strait of Hormuz reopens, the full normalization of the energy market is far from achievable overnight. The signing of the agreement marks only the starting point of a long recovery process. Even if the waterway reopens as scheduled this week, it will take months to complete oilfield resumption, pipeline pressurization, port clearance and vessel redispatching. Some countries face greater recovery difficulties, which may take up to a year. Expectations in the global energy market for a rapid return of supply are facing a reality check.

    S&P Global Commodity Insights recently released a report summarizing the conditions required for the opening of the Strait of Hormuz based on prevailing industry views. The report holds that the international market will only recognize the Strait of Hormuz as truly open when five core conditions are met: restoration of navigation scale, confirmation of ceasefire observation, in-place insurance coverage, compliance of waterway safety standards, and return of fleet operations.

    Even if the resumption of trade in the waters becomes clearer, the recovery of fertilizer transportation will be a gradual process, as hundreds of stranded ships carrying various goods in the region will have to compete for passage.