Oil prices face a lasting geopolitical risk premium
The U.S. war with Iran may have permanently altered the oil market, because any eventual agreement between Washington and Tehran could create a very different landscape than the one that existed before the conflict.
A possible U.S.-Iran deal would reopen the Strait of Hormuz, leave the nuclear issue unresolved and bring large volumes of oil back to the market. At the same time, global oil inventories, which helped cushion part of the energy crisis, are shrinking at a record pace.
Yet even after a deal, assuming one is reached, restoring prewar conditions will take time. More importantly, oil prices may continue to feel the impact of geopolitical instability because Iran has shown it can decide at any moment to disrupt supplies.
Until a few months ago, a closure of Hormuz was largely a theoretical scenario considered by analysts. No U.S. president had ever gone to war with Iran, in part to avoid that risk. Trump made it real. And even after an agreement, nothing guarantees that Tehran could not decide to close the channel again.
A permanent price premium in a riskier operating environment
Even after the crisis ends, Iran’s newly gained strategic leverage means markets will have to pay attention to the “geopolitical risk premium,” the tendency of investors to price in future risks before they materialize, helping push prices higher.
“There will be a permanent price premium attached to a permanently more risky operating environment,” Clayton Seigle, an energy analyst at the Center for Strategic and International Studies, told Axios.
In the near term, confidence in the reopening of Hormuz “will all come down to whether shipowners and crews feel safe transiting the Strait,” Ben Cahill, an analyst at UT-Austin, also told Axios. Cahill said there is still considerable uncertainty over whether Iran could impose some kind of fee, as well as over security conditions and insurance costs. “It could be a stop-and-go process,” he added.
The International Energy Agency also clarified in its mid-May oil market report that, once mine-clearing issues are resolved, it will probably take at least two to three months to restore export operations. It will also take time for Persian Gulf countries to bring production levels back up.
The toll question
A deal with Iran may not formally include a toll, but Iranian officials may still be considering new fees on oil tankers. That could become an advantage for Tehran even if the charge were relatively modest, said Edward Fishman, a former State Department official and now an analyst at the Council on Foreign Relations. Fishman suggested that ships could end up paying tens of billions of dollars a year, possibly even $100 billion.
From the perspective of market operators, whether oil traders or shipping companies, the fee for a VLCC, or Very Large Crude Carrier, could amount to $1 per barrel. For that reason, Fishman said, the private sector may be willing to pay the toll if that is the cost of moving vessels through the Strait.
The U.S. war with Iran has made the Gulf permanently more dangerous
Oil prices and control of Hormuz are the real stakes of a deal with Iran, not the nuclear program, which increasingly appears to be a pretext. As U.S. political scientist Robert Pape noted, if oil remains above $90 a barrel even after Hormuz reopens, then the main strategic outcome of the U.S. war with Iran may already have been decided.
According to Pape, the issue is no longer whether ships can physically cross the Strait. The question is whether markets now believe the Gulf has become permanently dangerous.
If that is the case, Iran may have discovered something far more powerful than a full closure of Hormuz: controlled instability can reshape global power balances without the need to win a conventional war.
Behind all of this lies a much simpler strategic question, Pape argued: “will oil prices return to prewar levels?” The short answer is that this is far from certain.