Oil futures jumped after diplomats signalled progress in talks over Iran. Traders are pricing in a possible reopening of the Strait of Hormuz.
Markets react to talks and damage assessments
Oil prices moved higher as negotiators wrapped a round of indirect talks and mediators described progress toward more meetings. Traders took the comments as a sign that the Strait of Hormuz — a chokepoint for global crude shipments — might reopen sooner than feared, at least to some traffic.
Futures rose on that hope, but analysts cautioned that relief would come slowly.
Henning Gloystein, managing director for energy, industry and resources at Eurasia Group, said the region's energy flows won't snap back overnight even if a ceasefire is reached. He pointed to damage at Gulf refineries and other infrastructure, and to the practical limits on getting tankers back into service after weeks of suspended transits.
Why reopening won't fix supply quickly
The Strait of Hormuz is just the start of the problem. Gloystein told reporters that shipping traffic plunged from roughly 130 transits a day in February to six a day in March, a collapse that reflects both direct damage and insurers' and operators' reluctance to resume normal routes.
There are at least 70 large empty crude tankers anchored off Singapore and Malaysia, Gloystein said — vessels that collectively can carry about 100m barrels of crude that would usually be loaded in the Gulf and sent to Asian refineries.
Repairing damaged onshore facilities and coaxing shipping firms back into hazardous waters will take months, he added. A tanker voyage from Singapore to the Gulf takes around four weeks, so even once owners decide to move, deliveries would be staggered and gradual.
Analysts lift price forecasts
Analysts and economists have already adjusted their price outlooks. A recent poll of 34 analysts and economists showed forecasts for average 2026 crude prices edging higher, with Brent expected to average about $63.85 a barrel and the US benchmark, WTI, around $60.38 — roughly a dollar and a half above last month's estimates, the poll found.
Those numbers represent long-run averages. Short-term volatility remains high because the market is carrying a geopolitical premium — estimated by some analysts at roughly $4–$10 per barrel — to reflect the risk of renewed or expanded hostilities.
In earlier market moves tied to the outbreak of hostilities, prices jumped sharply: US crude and Brent traded well above the levels seen before the conflict began, a reflection of the tightness in seaborne flows and the sudden re-pricing of risk across energy markets.
Supply tightness and demand-side fallout
Even if the strait reopens quickly, oil markets could remain undersupplied for some time, Gloystein warned in his analysis. Shipping capacity, refinery run rates and insurance costs all need to be rebalanced.
Higher transport and insurance costs would be passed on through the supply chain and could leave refiners and end consumers paying more. And those costs don't disappear as soon as a ceasefire is declared.
For countries that import substantial volumes of refined products, the pause in flows has meant re-routing, longer voyages and higher overall bills. Asian refineries, which normally pick up a large share of Gulf crude, will see deliveries arrive in waves rather than in a steady stream.
Political and diplomatic developments
Oman has been mediating the indirect talks and its foreign minister, Badr Albusaidi, said the parties had made "significant progress" in Geneva and planned further negotiations in Vienna. Albusaidi's comments were taken by markets as evidence that diplomacy hasn't stalled.
That said, the negotiating track remains fragile — ceasefires are notoriously brittle in the early days — and any setback would quickly reopen the risk premium on crude.
Western capitals are watching the talks because a stable gulf is central to energy security. For London, Paris and Berlin, the priority is to keep sea lanes open while avoiding military escalation that could widen the conflict.
What this means for the UK economy and households
Higher crude prices flow through to pump prices and broader inflation, and the UK isn't immune. The Bank of England has said repeatedly that changes in global energy costs feed into the inflation outlook, and sustained pressure on oil would make the central bank's task.
British households already face stretched budgets after years of high living costs. A fresh rise in petrol and diesel prices would add to that squeeze, particularly for those in areas with limited public-transport options and for businesses that rely on road freight.
At the fiscal level, higher global energy bills can widen the terms-of-trade shock, reducing real incomes and complicating the Treasury's planning. Ministers will be watching pump prices and wholesale fuel markets closely.
Timing, risks and market mechanics
Market mechanics mean that even if the Strait of Hormuz reopens within days, full normalisation will lag. Tankers need to reposition; crew rotations and insurance approvals must be sorted; and refineries — some of which have suffered outages — must reschedule crude inputs.
And those steps cost money. The war premium sitting in the price is a shorthand for higher insurance, disruption-related costs and the fear of further escalation.
Higher prices usually reduce consumption over time, especially in advanced economies where people can change how they behave or what vehicles they use. But demand shifts take months, not weeks.
What's next on the diplomatic calendar
Negotiators are set to reconvene in Vienna next week, following the Geneva session. Oman’s foreign minister, Badr Albusaidi, framed the outcome in Geneva as progress and said further talks were planned — comments that markets responded to with cautious optimism.
How quickly the diplomatic momentum can translate into concrete security arrangements for shipping will determine whether the current uptick in futures is sustained or reversed.
Bottom line: even modest diplomatic advances are being priced as relief, but the physical and logistical damage to the oil chain makes any rapid normalisation unlikely.
Related Articles
Oman’s Foreign Minister Badr Albusaidi said the parties had made "significant progress" and that negotiations will continue in Vienna.
This article was created with AI assistance.
