What Happens To Oil Prices The Day The Strait of Hormuz Reopens?

本站添加: 2026-05-30

[00:00:00]April 17th, 2026, Iran's foreign minister steps in front of a microphone and announces the Strait of Hormuz is open to all commercial shipping. In the next 17 minutes, Brent crude loses 11% of its value. That is roughly $12 billion of market capitalization gone in the time it takes to make a cup of coffee. Traders are celebrating.

[00:00:23]Shippers are calling their captains.

[00:00:25]Headlines around the world declare the energy crisis is over. Then the tankers try to actually move. Most of them turn around and go back. And here is the thing nobody in that initial coverage told you. The moment those tankers reversed course and reanchored in the Persian Gulf, the war premium did not fully return. The market did not snap back to $120 a barrel. It hovered. It wobbled. It started pricing something far more unsettling than a crisis. the slow, grinding, logistical reality of what it actually takes to restart oneif of the world's oil supply after it has been switched off for six weeks. That is the story, not the closure, not the war, the reopening. Because the reopening is where things get strange in ways that almost nobody has modeled correctly. And the consequences are going to run through your fuel prices, your grocery bills, and your stock portfolio for months after whatever deal eventually gets signed. Before I show you what a real reopening actually looks like, I need to tell you something about a number, not a price, a physical fact.

[00:01:29]The straight of Hormuz is 21 mi wide at its narrowest point. Two shipping lanes each about 2 mi across, separated by a 2-m buffer. That is the entire passage connecting the Persian Gulf to the open ocean. You could fit the island of Manhattan in that gap four times. And yet every year roughly 1/5if of everything the world runs on has to squeeze through those two little lanes.

[00:01:52]In 2024, oil flow through the straight averaged 20 million barrels per day. The equivalent of about 20% of global petroleum liquids consumption. 20 million barrels every single day, 365 days a year. No holidays, no weekends, no sick days. That works out to 231 barrels of oil transiting the straight of Hormuz every second of every day, more than any other single passage on Earth. It is the kind of figure that makes the abstract suddenly concrete.

[00:02:24]This is not a pipeline. It is not a storage facility. It is a 21m wide gap in the map that the entire global economy funnels through every hour of every day with almost no backup plan.

[00:02:36]And on the 28th of February 2026, the United States and Israel launched coordinated strikes on Iran. Shipping traffic through the straight of Hormuz was largely blocked by Iran, which launched missile and drone attacks on Israel, US military bases, and US allied Gulf States. The Iranian Revolutionary Guard Corps issued warnings forbidding passage through the strait, boarded and attacked merchant ships, and laid sea mines in the strait. within 72 hours, one of the most important economic structures on the planet was effectively closed for the first time in modern history. Now, before I get to what a reopening actually looks like from the inside, and I promise you the specific mechanics here are weirder and more consequential than anything you have heard, let me set the stage for why this matters so much. Because the funny thing about people's understanding of this crisis is that almost everyone got the first part right and almost everyone is getting the second part completely wrong. When the straight closed, the financial market response was immediate and historically unprecedented. After beginning the year at $61 per barrel, the front month futures price of Brent crude oil finished the first quarter of 2026 at $118 per barrel. Crude, oil, and petroleum product prices increased significantly, particularly following military action in the Middle East on February 28th and the subsequent deacto closure of the Strait of Hormuz. That is a 93% increase in a single quarter. The price increase during the quarter was the largest on an inflationadjusted basis in data going back to 1988. Not the largest since the Gulf War, not the largest since the Ukraine invasion, the largest ever recorded. The price surge was faster than during any other conflict in recent history, such as the Ukraine war, the Gulf War, or the Iraq War. And if you think that is just traders overreacting to geopolitical noise the way they always do, consider this. They were not wrong. The conflict in the Middle East impeded oil flows through the straight of Hmuz with export volumes of crude and refined products at less than 10% of pre-conlict levels.

[00:04:46]Less than 10%. Think about what that means. You are not looking at a disruption. You are looking at an effective shutdown of the world's single largest energy choke point. The International Energy Agency characterized it as the largest supply disruption in the history of the global oil market. The head of the IEA described the situation as the greatest global energy security challenge in history. Not a greatest challenge in recent memory, not in decades, in history. The IEA has existed since 1974.

[00:05:17]It was built specifically to handle moments like this one. And the person running it said he had never seen anything like it. Here is what you lost if you were not paying attention. And I want to be specific because specificity is what turns a statistic into something you feel. Gas prices rose $116 a gallon in the United States since the start of the war with prices expected to hit $5 a gallon if the straight of Hormuz was not opened by midappril. Jet fuel in North America spiked 95% since the war began, causing multiple airlines to raise prices for check baggage. In India, unfounded panic about shortages led to people forming long cues for petrol. In the Philippines, President Bong Bong Marcos declared a state of national energy emergency on March 24th, 2026. In South Korea, the government launched an energy saving campaign.

[00:06:12]Sri Lanka introduced a 4-day working week and on the 2nd of May 2026, Spirit Airlines ceased all operations, citing rising fuel costs. A budget airline could survive a global pandemic. It could not survive 6 weeks of Hormuz being closed. Now stay with me here because I want to take you to a specific country that in my view is the single clearest lens through which to understand everything that follows. A country that has been almost invisible in Western coverage of this crisis, but whose fate is the most revealing case study in what a reopening actually means and what it will cost. That country is Japan. Approximately 90 to 95% of Japan's crude oil comes from the Middle East and roughly 70 to 74% of its total crude imports pass through the straight of Hormuz directly. The United States by contrast imports less than 3% of its oil through that passage. Japan does not have shale oil. Japan does not have North Sea reserves. Japan does not have a Saudi relationship it can lean on for overland pipeline alternatives. Japan is an island and the island runs on oil that has one road in and one road out.

[00:07:22]When the closure happened, Japanese Prime Minister Sane Taki said the country intended to release oil stockpiles from its national reserves as early as the following week, citing an exceptionally high level of dependence on the Middle East. Japan also moved with unusual urgency compared to any other country in the IEA coordination process. Japan assumed a highly aggressive posture during the negotiations, moving rapidly to initiate its 80 million barrel reserve release by March 16th, 2026.

[00:07:53]This proactive stance is a direct reflection of Japan's acute geopolitical vulnerability, 80 million barrels. Japan released 80 million barrels from its emergency reserves before most countries had even finished reading the memos. But here is the part that haunts me about Japan's situation. And this is the rehook I want you to sit with before I go further. Japan's emergency reserves were not the real problem. Japan's reserves, according to most estimates, give them somewhere between 3 and 6 months of buffer. The real problem is what happens when Japan realizes those reserves are not going to be refilled at normal speed after the straight reopens.

[00:08:31]Because as I am about to show you, a reopening is not a restoration. It is the beginning of a monthsl long process that the market is almost certainly mispricing right now. Let me explain what actually happened when the first ceasefire was announced. April 8th, 2026.

[00:08:48]It was apart from the COVID crash of 2020, the biggest 1-day freef fall in oil prices since the 1991 Gulf War. The global benchmark Brent crude futures price fell about 13% to about $95 a barrel, but it was still far above the roughly $73 mark right before the war began at the end of February. 13% in one day. Analysts were calling it the peace trade. Traders were covering short positions. Refiners were quietly relaxing. And then you looked at the actual language of the ceasefire agreement. Iran's Minister of Foreign Affairs issued a statement saying that passage through the strait would be possible via coordination with Iran's armed forces and with due consideration of technical limitations. Via coordination with Iran's armed forces with due consideration of technical limitations. That is not a reopening.

[00:09:42]That is a toll booth with missiles. The market priced in peace. The market was wrong. On April 18th, Iran agreed to reopen the strait, but hours later determined the United States and Israel had violated their end of the bargain and once again began firing on ships attempting to pass through. By April 20th, traffic through the straight had dropped sharply again as on the 1st of March back to square one. In 48 hours, here is what that sequence cost everyone who was not watching closely. Every time the market traded on false reopening signals, it established a new slightly lower floor for what traders consider the true risk premium. The market became habituated to disappointment. After repeated fake outs over the past 3 months, the market began to ignore Trump's playbyplay, which means that by the time a real durable agreement eventually arrives, the market will be so conditioned to skepticism that it might underreact. And then when the actual barrels start flowing, the secondary effects, which are enormous and almost never discussed, will catch almost everyone flat-footed. Those secondary effects are what I want to focus on now because this is where the real story lives. Keep that number in the back of your mind. $126.

[00:10:58]That was the peak Brent price during the crisis. Remember it. I am going to show you what price it should not fall to and why. And the answer is going to change how you think about what a fair oil market looks like for the next two years. Let us start with the ships. On April 21st, the International Maritime Organization reported that about 20,000 mariners and 2,000 ships remain stranded in the Persian Gulf because of the closure. 20,000 mariners, 2,000 ships.

[00:11:28]Some of those ships have been sitting motionless in warm Persian Gulf water for nearly two months. Drifting in the warm waters of the Persian Gulf, vessels accumulated barnacles, sea creatures, and algae that can impede navigation.

[00:11:41]Hapac Lloyd, the fifth largest container shipping group in the world, was able to get one vessel out since the lockdown began. That ship required extensive cleaning. The CEO noted that once they got her out, the maximum speed she could still achieve was significantly less than normal. The CEO of Winias will Helmsen, a car shipping and logistics giant, said it would take at least 30 to 45 days until shipping in the region returned to normal. If everything went as planned, 30 to 45 days. If everything goes as planned in a region that just had a war with a country that still controls the narrow passage where both sides are still arguing about who violated what. On the 11th of May, Saudi Aramco CEO Amin Nasa said that over 600 tankers were stuck inside the Persian Gulf and another 240 were waiting outside on the other side of the straight. 600 tankers inside. 240 outside. More than 800 ships in a traffic jam bigger than anything the global shipping industry has ever seen, waiting for a political agreement between two countries that cannot agree on what the last agreement said. Now, here is something that almost nobody in the financial press has calculated correctly. And it matters enormously for where oil prices settle after a genuine reopening. The roughly 166 or so tankers stuck in the Persian Gulf that need to clear out are carrying around 170 million barrels of oil with them, according to Kepler's lead oil analyst.

[00:13:12]That will make way for empty tankers to enter the straight, load up, and head back out.

[00:13:18]170 million barrels, sitting on boats, ready to move the moment the passage clears. A return to full tanker transit capacity could take up to 3 months.

[00:13:29]According to Kepler senior oil analyst Victoria Greyenberwer, 3 months. Think about that carefully.

[00:13:36]The headline on reopening day will say oil prices fall. The analysts will say the crisis is over. The traders will sell. But the oil is not actually flowing for 3 months. There is a 170 million barrel backlog sitting on ships with barnacles on their hulls. plus another 240 tankers queued outside waiting to get in. Plus all the storage facilities that have been filling up inside the Gulf because producers had nowhere to send their oil. From the point of view of oil producers in the Gulf, the difference is largely academic because as soon as local oil storage fills up, oil producers have no choice but to shut in their oil wells if the oil cannot be stored or exported. This is why many oil producers starting with Iraq and Kuwait started cailing their production in early March 2026.

[00:14:23]Here is what that means for prices after reopening. The market is about to receive two waves of oil supply simultaneously. The first wave is the stranded tankers clearing out. The second wave is Gulf producers firing their wells back up, which takes weeks, not hours. And those two waves hit global markets on top of a third factor that has almost never been modeled in public analysis, the inventory overhang.

[00:14:47]Once ships start moving, they will first draw oil from the warehouses that have been filled because producers had nowhere else to put it. Those warehouses are full. Saudi Arabia, Iraq, Kuwait, and the UAE all accumulated oil they could not export. That oil is going to hit the market in a rush once the gates open. combined with the stranded tankers, combined with rising US shale output, combined with whatever Russian oil was temporarily rerooed to Asia during the crisis. If the twoe ceasefire leads to a permanent settlement and full reopening, analysts expected Brent to fall toward $80 or below as supply floods back into a market that outside the horm disruption is adequately supplied. $80 or below. OPEC plus has been hiking output. US shale production has held up. The war premium was not hiding a structural supply deficit. It was pure risk pricing. Here is the brutal irony hiding at the center of this entire story. The crisis revealed something that the pre-war oil market had been quietly papering over. Before February 28th, 2026, global benchmark Brent was last hovering around $63 a barrel, while US West Texas Intermediate futures held at $59 per barrel. That was the real price in a world with normal supply. The war premium added somewhere between $40 and $60 per barrel on top of that base.

[00:16:13]Which means the day the straight truly reopens truly durably with tankers moving and insurance companies writing policies again is the day that $40 to $60 premium collapses. And it will not collapse gradually. History says it collapses in hours. Remember the 1991 Gulf War? The United States's rapid intervention and subsequent military success helped to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence. After only 9 months, the spike had subsided. But the spike did not subside gradually. While the Iraqi invasion of Kuwait led to a spike in oil prices, these actually fell as soon as Allied bombings began in early 1991. The market did not wait for the last barrel to ship. It priced resolution the moment resolution looked credible and then over the following months prices continued to fall as the logistics caught up with the psychology. We are setting up for the same dynamic but with one critical important difference that almost no one is discussing. In 1991 the United States was a massive net importer of oil. In 2026 it is not. This is the subplot that has been running quietly underneath everything else this entire time. And I think it is actually the most important story in the entire crisis. Let me introduce it properly. While the world watched tankers sit motionless in the Persian Gulf while Asian economies burned through their strategic reserves, while Japan released 80 million barrels and South Korea launched an energy saving campaign and Sri Lanka introduced a 4-day working week, something else was happening 4,000 mi away in a scrubland flat in West Texas. The port of Corpus Christi has never been busier as tankers from around the world flocked to the US Gulf Coast to load up on crude oil during the Iran war. The Texas port was the third largest oil export terminal in the world before the war behind Rastamura in Saudi Arabia and Basra in Iraq. Its importance has only grown since as US crude oil exports surged to a record and the two big Persian Gulf ports were largely cut off from the world due to Iran's blockade of the Strait of Hormuz. US oil exports jumped to 5.2 million barrels per day in April.

[00:18:31]A more than 30% increase over the 3.9 million barrels per day exported in February before the war, according to Kepler. Then it got bigger. US crude exports surged to a record above 6 million barrels a day as the Iran war sent overseas buyers hunting for replacements to Middle Eastern oil.

[00:18:50]Overall shipments of US oil and fuel abroad hit a fresh record high above 14 million barrels a day, 14 million barrels a day from one country. The United States was exporting more oil per day than most countries produce. This is the part that does not fit neatly into anyone's pre-existing narrative about the crisis. There is a country that benefited enormously from the closure of the strait of Hormuz. That country controls its own supply. That country does not need the straight to be open.

[00:19:19]And that country's president is the one negotiating the peace deal. I am not suggesting a conspiracy. I am suggesting an incentive structure. And incentive structures in oil markets more than almost anywhere else determine outcomes.

[00:19:34]US shale oil producers boosted output in response to the energy crunch caused by the war in the Middle East. Exports ran at all-time highs. But there are limits to what the US energy industry can do and how long it can keep doing it. The shale patch is not infinite. The infrastructure is not elastic. And while oil from the United States, Latin America, and West Africa could for a short time substitute for Middle Eastern oil for countries in Asia, Asian refineries are optimized for the heavier oil produced in the Middle East. Asian markets were buying whatever they could get their hands on, taking a lot of light, sweet American crude. The problem is that you cannot run a heavy oil refinery efficiently on light sweet crude for very long. The economics get bad, the yields are wrong, the margins collapse, which means that even during the crisis at $126 Brent, Asian buyers were substituting with one hand and lobbying for reopening with the other.

[00:20:30]The gap cannot be plugged through substitution alone. The answer has to be ensuring secure supply from the Middle East. That is a direct quote from Kepler's director of commodity research, not a think tank. A market intelligence firm that tracks every oil tanker on the planet in real time. Let me walk you through exactly what happens on the day a true durable reopening is announced.

[00:20:53]Not a ceasefire, not a coordination framework with armed forces. An actual deal signed, verified with tankers moving and insurance reinstated. The first thing that happens is the oil price falls. Not by 3%, not by 5%. Based on the pattern we have already seen and the historical precedent of every previous resolution of a major supply disruption, WTI will plunge around 18%.

[00:21:19]Brent will fall nearly 17%. The largest single day drop in crude prices since the 1991 Gulf War. We already saw a preview of that on April 8th when the first ceasefire was announced. If the war premium going in is roughly $40 to $50 per barrel above a pre-war baseline and the market prices out that premium on announcement day, you are looking at Brent potentially trading in the high7s or low 80s within 24 hours of a credible reopening. But, and this is the part that separates the traders who make money from the ones who lose it, those prices will not stay at $80. Demining the straight, evacuating trapped tankers, and restarting production could take weeks to months. According to research firm Clear View Energy Partners, repairing damaged facilities, restoring pre-war output levels, and restocking depleted inventories could take multiple calendar quarters to years, multiple calendar quarters to years. Think about that in terms of market structure. Day one, oil crashes on reopening headlines. Week two, the world realizes the tankers are still stuck and demining is not complete. Week three, Iraqi and Kuwaiti production comes back online at maybe 40% of normal capacity because, well, pressure takes time to rebuild. Week four, the first postcrisis cargo ships start delivering oil to Asia, but the spot market for physical barrels is still insane because the just in time refinery systems that everyone relied on are full of holes.

[00:22:51]Goldman Sachs pushed back its expectation for straight of Hormuz normalization to end June from midmay citing 14.5 million barrels per day of Middle Eastern output losses driving a record inventory draw down. Morgan Stanley said it expected oil supply chains to take months to normalize even if a straighter form's reopening were achieved pointing to a structurally slow recovery in Gulf production capacity.

[00:23:15]Here is what that means for a normal person who drives a car and buys groceries. Your pump price is not going to fall the day the deal is signed. It might fall slightly the week after. But genuine sustained relief at the pump is probably 3 to 4 months away even after a deal. Assuming everything goes smoothly, assuming the mines are cleared, assuming Iran stops requiring coordination with armed forces, assuming the 800 plus ships get sorted out, and assuming no one fires a drone at a tanker on the way out just to test the terms of the agreement, even if a lasting deal to reopen the straight of Hormuz emerged, analysts said it could take months for oil shipments to return to normal levels and for fuel prices to go down. Backed up tanker traffic, ship owners concerned about another sudden escalation, and energy infrastructure damaged during the war are factors that could impede progress. And here is the loss you are absorbing right now that most financial coverage is not emphasizing enough. The world's strategic petroleum reserves, the emergency cushion that took decades to build, have been partially spent. The International Energy Agency agreed to release 400 million barrels of oil from its members strategic reserves. The proposed release was larger than the 182 million barrels of oil that IEA member countries released in 2022 after Russia launched its full-scale invasion of Ukraine. Double the Ukraine release. The IEA executive director said that IA members who together control some 1.8 billion barrels of stockpiled oil took a major action. But this release was only a fraction of the daily volume. about 20 million barrels that normally sails through the straight of hormones. Therefore, the release was unlikely to have a significant effect on world shortages. Analysts said the emergency reserve system was designed to bridge temporary shocks of a few weeks.

[00:25:10]It was not designed for a multi-month closure of the world's single most important shipping lane. There is simply no substitute for restoring access through the straight of Hormuz. The tools at our disposal, including strategic reserves, rerouting some exports and floating inventories, can provide some relief at the margins, but they are not structural solutions, not structural solutions. That is the kind of understatement that only a KPMG global oil and gas leader can deliver with a straight face. Now, let me bring you to the detail that I think is the single most under reportported element of this entire situation, the one that matters most for what the oil market looks like for the next 2 years. and the one that the ceasefire negotiations almost never acknowledge explicitly. The straight of Hormuz, even when it is open, is not neutral anymore. The IRGC declared that it would allow safe, stable transit via the Straight of Hormuz with aggressor threats neutralized, but that such passage would rely on new protocols in place. They stated that they had seen adequate compliance with its regulations from shipping companies and staff seeking to transit new protocols. Adequate compliance. This is the language of a toll booth, not an international waterway. Iran began controlling traffic through the straight and charging tolls of over $1 million per ship. $1 million per ship per transit. In a passage that normally sees 138 ships per day, on the 9th of March, Iran declared that they would bring more security of passage to countries that expelled US and Israeli ambassadors. This is an almost biblical degree of geopolitical leverage. Iran, a country that was militarily overwhelmed in the initial conflict, found a way to hold the entire global economy hostage through a combination of speedboats, naval mines, and drone boats in 21 mi of water. And every peace framework since then has to varying degrees had to work around the fact that Iran is not willing to simply hand back the key and walk away. In May 20126, the Islamic Revolutionary Guard Corps Navy announced that Iran had redefined the Strait of Hormuz into what officials described as a vast operational area. According to IRGC official Muhammad Akbazad, the strait was no longer viewed as the narrow maritime corridor surrounding the islands of Hormuz and Hangam. Rather as a broader strategic zone extending from the Iranian port city of Jas to Siri Island. They did not just close the straight, they expanded what they consider the strait. This is not a negotiating position. This is a strategic doctrine. And here is what that means for oil prices in the post reopening world. that nobody is fully pricing in yet. The insurance industry already knows in the days before the strikes, war risk ship insurance premiums for the strait increased from 0.125% to between 0.2 and 0.4% of the ship insurance value per transit.

[00:28:09]Very large oil tankers. This is an increase of a quarter of a million. That was before the closure. By the 9th of March, shipping insurance rates for the strait were reported to have increased by four to six times over the previous week. Four to six times per trip. For a tanker that might carry 2 million barrels of oil, even in a fully reopened scenario, those insurance premiums do not fall back to pre-war levels immediately. They might not fall back for years. They reflect a permanently revised assessment of risk in that corridor. Every additional dollar per barrel in transit costs gets passed to consumers. The inability of oil to transit a major choke point, even temporarily, can create substantial supply delays and raise shipping costs, potentially increasing world energy prices. The word temporarily is doing a lot of work in that sentence. Back to Japan because this is where the subplot resolves. Japan moved first on releasing reserves. Japan pushed hardest within the IEA for coordinated action. Japan ruled out sending naval vessels to the strait. Japan's prime minister was in constant contact with every major power involved in the negotiations. And Japan, more than any other major economy, is sitting on the most exposed refinary infrastructure in the world. The Japanese refiners obtain about 95% of their crude oil from Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar. About 70% of this Middle Eastern oil is delivered to Japan by ships that pass through the straight of Hormuz.

[00:29:41]Japan has been running down its reserves. Japan has been burning through its emergency buffer. Japan's entire economy, its manufacturing sector, its power grid, its car production, its pharmaceutical supply chains runs on a 6-week countdown clock that restarts every time a tanker clears the straight.

[00:30:01]When the strait truly reopens, Japan is the first country to feel genuine relief. But Japan is also the first country to understand that relief is fragile because Japan has spent 3 months watching what happens when the only road to your oil supply closes without warning. The Japanese government will not forget that the Japanese oil procurement strategy for the next 20 years will be shaped by what happened in the spring of 2026. more long-term supply contracts, more storage infrastructure, faster acceleration of domestic renewable power, deeper relationships with non-Gulf suppliers.

[00:30:35]Not because Japan wanted to change, because the Strait showed Japan it had no choice. That lesson is not just for Japan. These figures do not all measure the same thing, but they point in the same direction. Disruption in Hormuz is not a regional oil story. It is a global inflation, shipping and growth story.

[00:30:54]The closure of the straight of Hormuz that removes close to 20% of global oil supplies from the market is expected to raise the average West Texas intermediate price of oil to $98 per barrel and lower global real GDP growth by an annualized 2.9 percentage points 2.9 percentage points of global GDP. For reference, the COVID pandemic shaved approximately 3.5 points off global GDP in 2020. This crisis is in the same order of magnitude except CO was a demand shock. This is a supply shock which is if anything harder to reverse quickly. Now let me tell you the thing that I find most remarkable about this entire story. The thing that when I really sat with the data stopped me from writing for about 10 minutes. Apart from physically disrupting oil shipments, any prolonged disruption in the straight of Hormuz could also render unavailable the vast majority of the world's spare production capacity. most of which is held by Saudi Arabia. Think about that sentence. Saudi Arabia is the world's swing producer. When prices get too high, the world calls Saudi Arabia and asks them to open the taps. But Saudi Arabia's taps are inside the Persian Gulf. Only Saudi Arabia and the UAE have operational crude pipelines that could potentially reroute flows to bypass the straight of Hormuz with an estimated 3.5 to 5.5 million barrels per day of available capacity. The IEA estimated that only 3.5 to 5.5 million barrels per day could be redirected through Saudi and Emirati pipelines outside Hormuz.

[00:32:30]That matters, but it still leaves a very large gap if normal transit collapses.

[00:32:34]If one begins with a baseline of 20 million barrels per day and subtracts 3.5 to 5.5 million, the implied net shortfall is roughly 14.5 to 16.5 million barrels per day. 14 to 16 million barrels per day stranded, no alternative. The entire mechanism the world has built for stabilizing oil markets. OPEC spare capacity, Saudi swing production depends on ships passing through those two two mile wide lanes. The mechanism that was supposed to prevent price spikes was itself locked behind the very choke point that caused the price spike. The backup plan had no backup. I want to return now to where we started. April 17th, the announcement. Oil falls 11% in 17 minutes. Following the announcement, oil prices dropped sharply, losing 11% in the immediate aftermath. Although the straight was declared to be open, commercial traffic was unlikely to return to pre-war levels immediately after the ceasefire. Hours later, the tankers that raced for the exit had to turn back. But those 13 tankers that made it through on that brief window of a few hours, those ships registered to companies in four countries with China representing the largest national group, that tells you something about who has been maintaining back channel relationships with Tehran throughout all of this. Of the 187 vessels that had successfully transited the strait since March 4th, over half were operated by shipping companies located in just four countries. China's position at the top of that list is notable given reports that Beijing had pressed Tehran to protect Chinese shipping. While the strait was officially closed to Western Allied vessels, while 20,000 mariners and 2,000 ships sat stranded, 13 ships from China connected operators made it through. That is not a shipping story.

[00:34:26]That is a geopolitical story dressed up in tanker manifests. China alone accounts for 37.7% of total Hormu's crude oil flows. more than any other country by a wide margin.

[00:34:38]Nearly four in 10 barrels that passed through the straight before the closure were heading to China. China is not going to accept permanent disruption of 37% of its oil supply without doing something about it. And what China did about it was not military. It was diplomatic back channeling with Thran that allowed Chinese connected ships to transit while everyone else was stuck.

[00:35:00]During a call with Saudi Crown Prince Muhammad bin Salman, Chinese leader Xiinping said the straight of Hormuz should remain open to normal navigation which is in the common interest of regional countries and the international community. The straight of Hormuz should remain open, said the man whose country ships were the ones that kept transiting. The straight of Hormuz crisis of 2026 is at its core a story about two different kinds of power.

[00:35:27]Military power and economic leverage.

[00:35:30]Iran was militarily overwhelmed. Its nuclear sites were struck. Its supreme leader was killed. Its navy was degraded by any conventional measure of force.

[00:35:40]Iran lost the initial exchange completely. But Iran had 21 mi of water.

[00:35:46]and it understood with absolute clarity that 21 mi of water is worth more than any amount of missiles when it is the only road between the world's largest oil reserves and the global economy.

[00:36:00]Mosam Kzri, the analyst whose framing I find most useful here, calls the straight an economic clock of war. A short closure is an oil shock, but a long closure becomes an inflation and growth shock. The clock ran for 3 months. It is not done running. As of the final days of May 2026, oil prices fell to six week lows on hopes the straight of Hormuz could reopen within a month under a draft US Iran understanding. Thran reportedly received an initial unofficial framework that would restore commercial shipping in the key waterway to pre-war levels.

[00:36:35]Brent dropped 3.83% 83% to $95.77 a barrel and West Texas Intermediate fell $4.75 to $88.57 amid heightened volatility. Since the start of the war on February 28th, both benchmarks had soared by more than 30%.

[00:36:54]The United States and Iran are moving closer to securing a deal to reopen the strait and captains aboard the roughly 1500 ships stranded in the Persian Gulf for nearly 3 months are getting ready.

[00:37:06]Getting ready. Not moving yet. Getting ready. Even if a deal is finalized, the pre-war status quo, when upward of $130 ships transited the straight each day, would be perhaps weeks or even months away. So, here is where we are right now as I record this. Brent is trading around $100 a barrel. The pre-war level was approximately $61 to $73. The $30 to $40 war premium is still partially embedded in the price even though a ceasefire has technically been announced, rescinded, reannounced, and renegotiated multiple times. The market has learned to distrust announcements and watch tanker trackers. The physical market for real barrels as distinct from futures hit a record high of $1442 according to S&P Global Energy Plats, the highest recorded price of dated Brent. The previous record was set in 2008 at the height of the financial crisis 2008. That was the year the global financial system nearly collapsed. And this crisis produced a higher physical oil price than that.

[00:38:12]Without a financial crisis, without a collapse in credit markets purely from a blocked passage 21 mi wide, gas prices are currently falling. But until an agreement is signed in a significant amount of ships transit through the straight, the national average price of gasoline will likely remain well above $4 per gallon. According to Gas Buddy's head of petroleum analysis, here is the question I want to leave you with, and I am not going to answer it for you because the answer is more honest coming from you than from me. The pre-war oil price, $61 to $73 a barrel, was already considered elevated by some analysts in a world with abundant US shale supply, slowing demand growth from China and an OPEC plus coalition struggling to maintain discipline. The war premium added $40 to $60 on top. The reopening will remove most of that war premium probably quickly. But when that premium deflates, who keeps the windfall? The US shale patch made a fortune. The US benefited from the surging oil prices as an energy powerhouse. On the 24th of April, US exports of crude and petroleum products rose to nearly 12.9 million barrels a day. US producers were selling oil at $100 prices that cost them $45 a barrel to extract. The margin on that trade repeated across 6 million barrels of daily exports for 3 months is roughly calculated in the tens of billions of dollars. The countries that lost, Japan, South Korea, the Philippines, India, Pakistan, Sri Lanka, spent their emergency reserves and will spend months refilling them at postcrisis prices that are still elevated relative to where the market would be without the risk premium. They paid the war. They did not start it. The Persian Gulf is also a major hub for global fertilizer production and exports. In the 2020s, the region has accounted for roughly 30 to 35% of global ura exports and around 20 to 30% of ammonia exports. Overall, up to 30% of internationally traded fertilizers normally transit the straight of Hormuz. Fertilizer. The part of this story that never makes the oil price headlines. Over 30% of global ura, which is widely used and is produced from natural gas, is exported from Gulf countries through the strait. Much of the cost of producing foods including corn and wheat is in the cost of fertilizer. And this cost along with rising energy costs makes basic food production very expensive. The straight of hormuz being closed does not just raise your gasoline price. It raises the price of bread. It raises the price of corn. It raises the price of every product whose production depends on fertilizer which is every product that grows in soil. The lag time on that effect is 6 to 12 months. Which means the food price inflation from this crisis is still coming. It has not fully arrived yet. The grain planted in the spring of 2026 will reflect the fertilizer prices of March and April when it is harvested. And those prices were a disaster. Back to April 17th. The oil market falls 11% in 17 minutes. The tankers race for the exit. Most turn back. Brent rebounds. The straight is declared open. Then it is declared closed. then open again for a fee by coordination with armed forces with due consideration of technical limitations.

[00:41:36]The IEA released 400 million barrels from emergency reserves. It was not enough. The IEA executive director Fatty Biral said the most important thing for a return to stable flows of oil and gas was the resumption of transit through the strait of Hmuz. Not the reserve release, not the diplomacy, not the military operations, the resumption of transit, the tankers actually moving, the 21 m actually working. And those tankers, the ones sitting with barnacles on their hulls, the captains getting ready, the ones carrying 170 million barrels of oil that the world needs, are waiting for the same thing the oil market is waiting for. A piece of paper that actually holds. a ceasefire that does not have an asterisk. An agreement where coordination with armed forces means maritime traffic control, not toll collection with naval escorts. The strait is not a light switch. It never was. But the world spent 40 years treating it like one. And now we are learning at extraordinary cost what happens when the switch breaks. Here is what happens to oil prices the day the straight of Hormuz truly reopens. The headline price falls sharply, probably 15 to 20% in the initial session, mirroring every previous resolution of a major supply shock. Within a week, it stabilizes somewhere above pre-war levels as the market price is in the logistical backlog, the damaged infrastructure, and the permanently elevated insurance premiums. Over the following 2 to 3 months, as the tanker jam clears and Gulf production comes back online, prices drift toward $80 a barrel. By the end of 2026, if the resolution is durable, the analysts who said 80 or below will be vindicated, but you will still be paying more for gas than you were in January of this year and more for bread and more for flights.

[00:43:26]And the emergency reserves that were meant to protect you will be partially depleted and will take years to refill.

[00:43:32]And the shipping insurance market will have a new baseline. And Japan will have a new energy strategy. And China will have demonstrated a new model of back channel energy diplomacy. And the United States will have discovered that a Middle East war, the kind that previous administrations avoided partly for economic reasons, is actually a massive financial windfall for domestic oil producers. And somewhere in all of that, in the tanker jams and the demining operations and the barnacled hulls and the 400 million barrel reserve release, is the actual answer to the question, not what happens to oil prices on reopening day. That part is easy. Prices fall. The harder question is what do they fall to? And the honest answer, the one hiding underneath all the diplomatic language and the market optimism and the IEA statements about resuming normal transit is this. They fall to a level that reflects the world as it now is. A world where 21 miles of water can be turned into a weapon system by a country with speedboats and naval mines in the right geographical address. A world where the backup plan had no backup. A world where the gap between the headline price and the physical reality of who actually gets oil and when and at what cost and insured by whom can stretch to tens of dollars per barrel for months after the paperwork says the crisis is over. The tankers are getting ready to move. The captains have been waiting nearly 3 months. The straight is not a light switch. But somewhere out there right now, a barnacle covered tanker is revving its engines for the first time in weeks. and the cargo aboard it. Oil, the ancient pressure of geological time turned into motion, is about to start moving toward refineries in Japan and South Korea and India and China that have been rationing their last reserves like careful householders watching the last logs burn in a fireplace in January. That cargo is worth more per barrel than any oil that moved through those lanes before February 28th of this year. Not because it is better oil, because we finally understand what it costs when it does not move at