Analysts warn of supply risks as oil prices return to pre-war levels
Oil prices have fallen back sharply to near pre-war levels over recent weeks in response to a fragile truce between the U.S. and Iran, and diplomatic efforts to bring the conflict to a lasting conclusion.
However, commodity strategists warned Monday that prices could reflect an overly optimistic stance from markets, which are underestimating the scale of persistent supply-side challenges.
Analysts argue that shipping traffic through the Strait of Hormuz is unlikely to swiftly return to pre-war levels, even after a pickup in activity following the U.S.-Iran ceasefire agreement, as Tehran seeks to exert leverage over the critical chokepoint.
Strait of Hormuz traffic normalization
Nikos Petrakakos, managing director of investments at Tufton Investment Management, said many shipping companies remain wary of sending vessels back through the key energy chokepoint, citing uncertainty over the peace framework, lingering concerns over sea mines and elevated war-risk insurance premiums.
“Even though there is some more motion going on, in general, we’re nowhere near being back to where it was,” Petrakakos told CNBC’s “Europe Early Edition” on Monday.
International benchmark Brent crude futures were trading at $72.45 per barrel as of 8:42 a.m. ET on Monday, compared to a wartime-high of over $188 per barrel in late April.
Amrita Sen, founder and director of research at Energy Aspects, said markets may be underestimating how far shipping conditions remain from their pre-war norm.
While vessels that had been trapped are now transiting the Strait, she said the bigger challenge is persuading shippers to send vessels back in. “Shipping costs are incredibly high right now, and you still can’t find enough shippers willing to go back out in there,” Sen told CNBC’s “Squawk Box.”
Sanctions risk a ‘slippery slope’
Strategists say a formal toll system for vessels in the Strait of Hormuz is unlikely to emerge, but they warned that Tehran may continue to push for some degree of control over shipping through the waterway.
Petrakakos said arrangements around possible tolls or coordination with Iran remain largely ad hoc, with most shipping companies avoiding direct engagement because of sanctions risk.
Proper coordination with Iran “is not happening,” he said, describing the issue as a “slippery slope” for companies that could expose themselves to penalties later. Some operators, he added, appear to be taking a more opaque approach, including switching off transponders to obscure vessel locations.
“Before this war, Iran really had no power or say over what goes through the Strait of Hormuz,” Petrakakos said. “That is a status quo that’s changed going forward. I don’t see Iran going back to where it was before.”
Brent crude.
He said Iran will continue trying to push for “some sort of coordination… pretending as if it’s some sort of canal like the Suez Canal or the Panama Canal, and try to have some control over how the vessels pass through.”
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