Markets Will Recover Gradually from War, IEA Says

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Brent crude oil prices are at levels not seen since the start of fighting in the Middle East. A preliminary truce is in the works, but it will take time for markets to return to normal.

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No Immediate Relief Expected

With details of the peace memorandum of understanding between Iran and the United States emerging, the International Energy Agency warned Wednesday that market recovery will be gradual.

IIR has been monitoring developments since fighting began in late February with joint U.S.-Israeli airstrikes on Iran. U.S. President Donald Trump on Sunday said a preliminary arrangement meant the Strait of Hormuz would reopen after more than 100 days of bottlenecks, but regional issues remain.

According to Industrial Info Resources data, Kuwait National Petroleum Company (KNPC) is running several units at its Mina al-Ahmadi refinery at below peak capacity due to damage suffered during the height of the conflict. On Wednesday, the International Energy Agency said that, assuming the deal sticks, getting the market back to its pre-war status will take time, if it materializes at all.

"A full recovery will not be immediate, however, as mines will have to be removed from the main shipping lanes and supply chains will take time to normalize," agency analysts wrote.

From the sidelines of the G7 summit in Paris, the U.S. president lauded the understanding with Iran, adding that "ships (are) moving nicely" through the Strait of Hormuz.

"We reaffirm that the right of transit passage without restrictions or tolls is the bedrock of international trade," a joint statement from the G7 leaders read.

Vessels are moving through the Strait of Hormuz, though traffic is at a fraction of its pre-war levels. International maritime agencies have warned the threat level is still severe.

Alternatives are available, including exports of Iraqi crude oil through Turkish ports on the Mediterranean. The Abu Dhabi National Oil Company (ADNOC) has invested US$3 billion toward the Dhanna-Fujairah crude oil pipeline, a 310-mile artery that can avoid the Strait of Hormuz.

The United Arab Emirates proposed an entirely new pipeline called West-East, which could complement the Habshan-Fujairah crude oil pipeline. Saudi Arabia too can avoid the Strait of Hormuz, though none of the pipeline options can make up for the 20 million barrels per day (bpd) that would normally move through the waterway.

Iran Gets Reconstruction Package

Details of a 14-point plan are emerging ahead of the Friday signing ceremony. According to the Reuters news service, U.S. Vice President JD Vance said there would be a $300 billion reconstruction package for Iran, provided it abides by nuclear restraints. Iran still insists on an Israeli withdrawal from Lebanese territory, but it would be able to sell its oil freely under the terms of the deal.

The price for Brent crude oil, the global benchmark, lost its grip on the $80 mark for the first time since early March, days after the conflict began. Some dip-buying was apparent early Wednesday, but Brent was at $79.75 per barrel about an hour before the start of trading on Wall Street.

The IEA warned, however, that supply-side buffers are eroding at "a record pace." This week, IIR reported the U.S. Strategic Petroleum Reserve was nearly halfway depleted, suggesting any further market cushions may be scarce should fighting resume.

"Further declines in the coming months could still take global oil stocks to historic lows before the market balance shifts to surplus towards the end of the year," the IEA reported.

Relief is in sight, however, provided forecasts prove accurate and conflict subsides. The IEA said it expected global oil demand to show a sluggish 2 million barrel-per-day increase from 2025 levels, but an 8 million bpd jump by next year.

"This may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis," the agency stated.

By the Numbers

• $70 something Brent for the first time since early March
• 2 million bpd annual increase in demand is low

Key Takeaways

• We're not out of the woods yet, the IEA warns.
• Buffers by way of extra reserves are depleted.

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).