Global oil markets could take as long as a year to return to something like pre-Iran war normality even if the conflict ended tomorrow, leading experts warn.
Hopes for an immediate restart of shipping through the strait of Hormuz have been dashed after Israel bombarded Lebanon shortly after the announcement of a two-week cease-fire between the US and Iran, with Iranian media reporting traffic through the strait had been halted in response.
Following the mid-week news of the deal, the global benchmark oil price, Brent crude, plunged by about $US20 a barrel and towards $US90 – its biggest drop in six years – but has since climbed back above $US97 a barrel.
Analysts warned that the past 48 hours have revealed how far off a negotiated end to the war remained.
Helima Croft, head of global commodity strategy at RBC Capital Markets, said Gulf countries were opposed to a formalised toll arrangement with Iran’s armed forces to allow shipping through the strait, one of the country’s initial proposals for a ceasefire deal.
“Above all, we think the mechanics of reopening the strait will be exceedingly messy, with Iran potentially having a vote on nearly every barrel that exits the waterway until Gulf countries can build more alternative access routes,” Croft said.
Ahead of a 12 May budget that is expected to include additional cost of living support for households and businesses hurt by the fuel crisis, Jim Chalmers on Thursday recognised that “the economic consequences of the war in the Middle East will still be felt for some time yet”.
“First of all, we need to see the strait [of Hormuz] reopened, we need to see the ceasefire stick,” the treasurer said.
After which, “we’ll need to do a proper assessment, for example, on the damage done to oil and gas infrastructure in the Middle East”.
Robert Rennie, head of commodity strategy at Westpac, agreed that the impact of the war would outlast the end of hostilities.
Sign up for the Breaking News Australia email“Even if we do manage to hold a stable ceasefire with a coordinated reopening of the strait of Hormuz, it will take months before shuttered wells are reopened, crews and vessels are in the right places, refineries are fully repaired and restocked, and fuels shipped to the countries that really need it,” Rennie said.
While fuel retailers were quick to hike prices following the first US-Israeli attacks on Iran at the end of February, lower global oil prices this week are yet to be seen at the bowser.
Diesel prices have shot up 20 cents a litre in the past two days and reached new record highs of around $3.24 on Thursday, more than reversing the relief provided by the 26-cent cut in fuel excise and the temporary removal of the 10% GST.
In contrast, unleaded petrol prices on Thursday remained about 30c below their March highs, but still high at about $2.25 a litre in the major cities.
Vivek Dhar, a commodity strategist at CBA, said his team had been starting to think about how energy markets could eventually return to something approaching normal.
Dhar said there would likely be a permanent additional “geopolitical premium” that would need to be paid for Middle East gas and oil.
“We are looking at a six to 12-month window to get the supply-side normalised if [the Iran war] ends tomorrow,” he said.
With loaded tankers waiting to travel out through the strait, and full inventories ready to be loaded on to incoming ships, Dhar said a reopening of the strait for the mooted two-week period would give “some relief” to supply pressures.
“The first step is to get the ships out, and we have fallen over at the first hurdle.”
If the ceasefire holds and turns into a longer-term negotiated peace, then the potentially fraught process of restoring temporarily shuttered oil wells could begin.
The International Energy Agency this week estimated that about 9 million barrels of oil a day, or about 9% of global supply, has been paused awaiting clear passage through the strait.
While some of that paused oil production could restart within weeks, the state-owned Kuwait Petroleum has flagged that it could take three to four months to restore full output from its shut-in wells.
Dhar said the longer wells were shut “the higher the risk that something goes wrong, like there’s too much water, or there’s corrosion”.
In the case where parts need to be replaced, “that’s when the timeframes to full recovery are really unknown”.
“We could be talking six months or just under a year, and that’s for limited damage.”
The longest market to return to pre-war supplies will be liquefied natural gas.
The Ras Laffan facility in Qatar, which is the largest gas liquefaction facility in the world, has been offline since it was first attacked on 2 March.
Dhar said the Qatari owners of the LNG facility had flagged it could be sidelined for two to three years.
