A tentative agreement between the United States and Iran aimed at ending their conflict and reopening the Strait of Hormuz caused oil prices to fall sharply, as markets anticipated a return of energy supplies. However, industry insiders warn that getting back to pre-war production and refining levels could take anywhere from weeks to years.
Here is a breakdown of what the deal means for global energy.
What Changes Right Away?
U.S. President Donald Trump announced that the Strait of Hormuz — a critical shipping corridor for the world’s oil and gas — would reopen on Friday. Iran had effectively shut down the waterway for months. Trump also said he had ordered an end to a U.S. blockade of Iranian ports.
Iran’s deputy foreign minister, Kazem Gharibabadi, stated that a broader agreement addressing the wider conflict would be worked out during a 60-day ceasefire, which would also include sanctions relief for Iran.
How Quickly Can Oil Production Restart?
Several major Middle East oil producers — including Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates — were forced to cut millions of barrels per day of crude output because of the Strait’s closure.
The International Energy Agency’s latest report indicates that more than 14 million barrels per day of oil production is currently offline, which represents about 14% of total global demand.
According to an official familiar with the situation, some production — such as in Iraq — could resume within less than a week once a restart decision is made. Other operations will require considerably more time.
Analysts at Wood Mackenzie offered this assessment: “Assuming operators choose a measured and controlled ramp-up, our analysis suggests the fields affected by the Strait’s closure could get back to 70% of prior production within three months and to 90% within six months. The last 1 million bpd or so will take considerably longer.”
Why Are Refineries a Problem?
The conflict shut down as much as 3.52 million barrels per day of refining capacity as of May 7, according to industry monitor IIR — roughly 3.5% of the world’s total refining capacity, with some facilities sustaining damage.
Refineries that were closed as a precautionary measure could be back online within a couple of weeks, analysts say. Repairing damaged facilities, however, will take longer.
Bader Nooruddin, head of research at Vitol Bahrain, said earlier this month that Gulf refineries could recover to between 90% and 95% of capacity within 40 to 60 days.
Energy research firm Rystad Energy estimates that total repair costs across the Middle East will average around $46 billion, with refining and petrochemical facilities accounting for the largest portion due to the complexity and extent of the damage.
What About Natural Gas and LNG?
Early in the conflict, major liquefied natural gas operations — including those in Qatar — either halted or significantly reduced output following attacks on their facilities.
Once a decision to restart is made, it will take approximately two weeks to convert gas into its super-chilled liquid form and reach full operating capacity.
The liquefaction process — which involves cooling natural gas to around minus 162 degrees Celsius (minus 260 degrees Fahrenheit) — requires a deliberately slow cooldown to prevent thermal shock. The processing lines, known as LNG trains, cannot all be restarted at the same time and must be brought back online in sequence.
Qatar Energy kept three of its processing trains running throughout the war to supply Kuwait and Bahrain. However, a full return to capacity will take years. QatarEnergy’s CEO has said that Iranian attacks destroyed 17% of Qatar’s LNG capacity for as long as five years.
Oil Stockpiles Will Take Years to Rebuild
The global supply disruption has drained the world’s oil reserves significantly, and restoring them to normal levels will be a lengthy process — potentially taking years.
According to the U.S. Energy Information Administration, stockpiles in the world’s largest economies are on track to hit their lowest levels since at least 2003, depleted at a record pace due to the loss of Gulf production.
Paul Gooden, head of natural resources at investment manager Ninety One, put it plainly: “It will take several months to fully normalise flows, and we estimate that global oil inventories have shrunk by more than 1 billion barrels since the start of the conflict.” At current prices, one billion barrels would be valued at more than $83 billion.
Gooden added: “Oil markets will therefore likely suffer a ‘hangover’ for several years as governments seek to rebuild inventories and to insulate themselves from further geopolitical shocks.”
