MUSCAT, OMAN - MARCH 30: A police speed boat patrols the port as oil tankers and high speed crafts sit anchored at Muscat Anchorage near the Strait of Hormuz on March 30, 2026 in Muscat, Oman. (Photo by Elke Scholiers/Getty Images)

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Years ago, an article by GWU’s Robert Weiner talked about the oil futures market that was active in Pennsylvania in the first years of the oil industry. Traders would cluster around a ticker tape machine and react to every report of a successful well or a well that declined. It feels like that recently, except the news people react to are social media posts by the U.S. President, typically ‘buy on the aggressive tweet, sell on the conciliatory one.’

Now, prices are likely to fluctuate depending on reports of tanker transits of the Straits which will be taken as indicative of how quickly shipping reaches pre-war levels. Many argue that the recovery will be slow because 1) mines need to be removed; 2) shippers might be reluctant to test the waters (so to speak); and 3) the potential that Israel and Hezbollah might continue fighting, causing Iran to pause the ‘opening.’

First and foremost, the deal could very well fall apart, in which case oil prices could soar. Industry warnings about low and falling inventories should be taken seriously, even though efforts to cope with the Straits’ closure have delayed—but not eliminated—the day of reckoning. Disagreements about the terms of the agreement or continued fighting in Lebanon could stall any signature and/or implementation.

But assuming the deal is signed and at least initially appears to be holding, prices should remain depressed but reacting to any difficulties tankers have exiting the Gulf. Ships might trickle out slowly at first, which will push prices up. Even minor attacks on shipping, possibly by rogue IRGC elements in Iran, could reduce the number of shippers willing to risk the transit especially if the initial attempts are unsuccessful. On the other hand, early success would embolden others and make it easier to ignore later sporadic attacks, keeping oil prices moderate.

The removal of underwater mines would slow the reopening of the Straits, but the problem seems exaggerated. Although the Iranians are reported to have sown a significant number of mines, and the U.S. is rumored to have removed some, the salient fact is that none of the 100+ ships that transited have definitively encountered mines: some seem to have been damaged by unmanned underwater vehicles. If that is the case, then the mines do not need to be removed for transit to resume; the Iranians simply need to cease active attacks.

Additionally, there’s no question but that the shipping in the Straits could be delayed if too many rush for the exit. This is unlikely at first, but congestion could delay reaching pre-war transit levels. All of the oil now stranded in the Gulf will not move out immediately but in growing volumes; whether and when flows will significantly surpass pre-war levels is an open question which will determine how rapidly inventories around the world refill. But shipping times should drop as volumes from the Atlantic basin are replaced in Asia by nearby Gulf oil.

I am more optimistic than many about the ability of producers to restore supply to pre-war levels sooner rather than later. Outside analysts often exaggerate engineering challenges and underestimate the ability of the engineers to overcome them. That said, even if there is an initial surge of oil from the Gulf as loaded tankers leave and onshore storage fills incoming ships, the global oil market will not necessarily be restored to balance before the next quarter, let alone rebuild inventories.

In part, that depends on whether Iranian oil will now be allowed to flow, which appears to be agreed to if reports are correct. The Iranians have a lot of oil in storage that will ameliorate global tightness and should be able to reach pre-war production and export levels in a short period of time. Some believe they have shut fields in and delays in restoring production should be expected; others claim they have continued to produce for storage, implying no delays should be expected. The next few weeks should resolve he issue.

And while inventories will be slow to rebuild, at least for the rest of the summer, they don’t need to reach pre-war levels which were quite high, albeit much of it sanctioned oil on tankers. Stocks are still above post-pandemic levels; government stocks will need to be rebuilt, but presumably that would be delayed until supply is in surplus again. (Assuming economically rational governments, that is.)

Also, there is a big difference between how prices react to inventories: is it the trend or the level? That is, low inventories that are building could be bearish, especially if indications are that the build will continue. That would be the situation in the next few months if the Straits remain open. Still, low but rising inventories might not support higher prices, but should keep a floor on them until they become abundant again, which is months away.

Finally, whenever analyzing oil price movements it is important to remember that they are driven by traders’ expectations, not fundamentals. Expectations are influenced by fundamentals but in this case, if traders think the agreement will hold and the Straits remain open, they will watch for any sign indicating how much oil is flowing (near real-time data) but also how much is likely to flow. A shaky agreement or cautious shipowners could send prices upwards again. But if shippers generally announce they are sufficiently satisfied as to their ships’ security, prices might not budge.

So oil prices are likely to remain volatile, responding to every comment from Teheran and Washington, any complaints about (non)compliance, military moves in Lebanon from either side, reports of attacks on or threats to tankers in the Straits, but especially to evidence of the amount of oil being produced in the Gulf and the number of tankers existing it. We can see some daylight, but we aren’t out of the woods yet.