A potential US-Iran peace deal and the full reopening of the Strait of Hormuz could significantly improve global crude oil availability. If the agreement is finalized on Friday and maritime traffic resumes without disruption, benchmark oil prices may dip below $80 a barrel within two to three weeks, according to executives at Indian refining companies.
Understanding the Agreement
The United States and Iran have reportedly reached an understanding aimed at ending military hostilities, lifting the US naval blockade on Iran, and restoring navigation through the Strait of Hormuz. Both sides have also agreed to continue negotiations for 60 more days to address unresolved issues related to Iran's nuclear program. Following the news, Brent crude dropped 5% on Monday to around $83 a barrel.
Impact on India's Oil Supply
Before the conflict began on February 28, the Gulf region supplied about 40% of India's crude oil imports. After hostilities erupted, inflows from the region fell sharply. While imports from Saudi Arabia and the United Arab Emirates recovered substantially after an initial decline, supplies from Iraq, Kuwait, and other producers remained under severe strain.
Industry officials expect the Strait to reopen once the deal is signed. One refinery executive told ET that if the US Navy and Iran's Revolutionary Guards adhere to the agreement and avoid actions that could disrupt the process, the oil market could stabilize within 15 to 20 days. Under such a scenario, Brent crude prices could fall below the $80-per-barrel mark.
The reopening of the waterway would also allow oil tankers currently stranded in the Persian Gulf to resume deliveries to consuming markets. Additionally, producers are believed to hold substantial crude volumes in onshore storage facilities and would likely move quickly to ship those supplies once normal trade routes are restored.
Benefits for India
For India, the Gulf's geographical proximity could translate into quicker access to substantial crude oil supplies, according to refinery executives. One industry official noted that this may reduce the country's reliance on longer-distance shipments from markets such as the United States and Russia.
The executive also said that damage to oil production infrastructure across the Gulf region appears limited, suggesting that facilities could resume operations relatively soon. As a result, crude supply from the region may recover far more rapidly than many market participants currently anticipate.
Global Market Implications
Industry executives further pointed out that additional output from OPEC+ producers, combined with the return of Iranian crude to international markets, would help ease supply constraints and exert downward pressure on global oil prices.
They added that the cessation of hostilities, along with the lifting of sanctions on Iran and greater availability of oil tankers, is likely to significantly lower freight and insurance costs associated with energy shipments.
However, the same pace of recovery may not extend to liquefied natural gas (LNG) and refined petroleum products, where disruptions could linger for longer.
