Iran deal: Trump is back to square one, but the cards are now in Tehran’s favor

Oil prices fell on Monday amid hopes that the ceasefire deal between Washington and Tehran would end the global energy supply disruptions that sent the costs of gasoline, jet fuel, and other similar products surging for the last several months.

A 60-day preliminary ceasefire extension with Iran was agreed to over the weekend and includes provisions to end the United States’ naval blockade of Iran and reopen the Strait of Hormuz.

The closure of the waterway has displaced tens of millions of barrels of crude since the war began in February. Before the conflict, nearly 20 million barrels of oil and other petroleum products passed through the strait daily. This is roughly equivalent to 20% of global oil demand.

Senior U.S. officials confirmed that President Donald Trump and Vice President JD Vance digitally signed the memorandum of understanding, along with Iranian Parliament Speaker Mohammad Bagher Ghalibaf. The peace deal, however, still has to be signed in person.

Traders appear to be the most confident they have been since the war began that there could be an end in sight and the strait reopened. Still, some fear that the conflict between the U.S. and Iran could escalate before the formal signing, or that the deal will not deliver long-term relief from the supply disruptions.

Are vessels ready to transit through the strait?

The 108-day war in Iran effectively closed the Strait of Hormuz, bringing ship traffic largely to a standstill.

The president on Monday claimed that traffic in the Strait of Hormuz would be “completely open” by Friday. While the waterway may be reopened, maritime and shipping industry experts said it could take time to resume back to normal traffic, as safety remains a major concern for vessels.

In a statement, Jakob Larsen, chief safety and security officer at the Baltic and International Maritime Council, said there are insufficient details regarding the security situation for ships in the waterway.

He noted that it is “very risky for ships to commence transits at this point.”

“The threat of mines in the area remains a concern immediately as well as further down the line, and mine-free routes need to be established,” Larsen said. “Credible assurances from both sides of the conflict must be given before traffic can resume fully to pre-conflict levels.”

It is unclear how many mines Iran may have placed throughout the Strait of Hormuz.

A senior U.S. official noted earlier Monday that it would take some time to get traffic in the Strait of Hormuz back to normal levels, noting the need to clear mines.

“We probably won’t return to normal in two weeks, but we will see a significant increase in [strait] traffic,” the official said.

Larsen added that resuming maritime traffic should be directed by a neutral body, such as the United Nations. French President Emmanuel Macron said Monday that France, the United Kingdom, and 20 other countries will lead a maritime effort to reopen the waterway.

Nearly 500 ships are stuck in the Persian Gulf, including around 220 tankers, according to Kpler data.

At times during the conflict, the strait has been briefly opened to limited traffic. According to the Trump administration, last week, the U.S. Navy was escorting ships through the waterway and guided more than 20 crude oil carriers on some nights.

Sheel Bhattacharjee, head of European freight pricing at Argus Media, said in a statement that the freight market participants are “doubtful” that meaningful shipping through the strait will happen soon.

“Freight market participants are approaching the announcement between the U.S. and Iran to reopen the Strait of Hormuz with hesitance, saying they would prefer to remain cautious and seek clearer assurances on the safety of vessels transiting through the strait first, particularly after a series of false starts around similar developments in recent months,” Bhattacharjee said.

Will there be tolls for going through the strait?

On Sunday, Trump told the New York Times that the agreement reached with Iran would ensure that the Strait of Hormuz remains “permanently toll-free.”

Before the war, Iran had not charged tolls on vessels traveling through the waterway. To assert its dominance over the strait, Iran began charging a fee on ships seeking safe passageway.

In March, reports indicated that the country was levying tolls of up to $2 million on ships.

The administration has blasted the toll as illegal, with Trump pointing to it as one of the reasons for the U.S. blockade of the strait.

Vance confirmed Monday morning that the administration’s expectation with the ceasefire deal is that the strait will remain open “in a toll-free way for the long term.”

But Iranian state media have said the waterway will only be open toll-free for 60 days.

Energy analysts expect tolling to be a key part of negotiations, as it remains a point of leverage for Iran.

“I suspect this could be one of the things, along with the nuclear situation, as to why no one should think peace is just guaranteed,” Arjun Murti, a partner with energy advisory firm Veriten, told the Washington Examiner.

“I think tolls are going to prove to be completely a nonstarter for anybody else, but I think we’ll have to see how the U.S. reacts to an imposition of tolls in the future,” Murti said. “I think that’s one of the uncertainties. Clearly, Iran’s going to want to try and keep up [and] continue to have leverage.”

How fast can production in the Gulf come back online?

Several crude producers were forced to stop extracting oil during the war because they ran out of storage space due to their inability to export the products through the strait. In March alone, this cost countries in the Persian Gulf roughly 8 million barrels per day of crude production.

Some nations, including Kuwait and Qatar, also saw several oil and gas facilities and hubs damaged in the crossfire of the war, adding to the supply disruptions.

Restarting those operations will take some time. Depending on the damage, it might not happen for months or even up to a year.

Many energy analysts have pointed out that, for any country to consider starting its operations, there must be evidence of a long-term ceasefire agreement, available ships willing to transit through the strait, and viable security conditions.

“Until you get the full ships out and bring empty ships in, you can’t restore those production volumes,” Clay Siegle, a nonresident scholar in energy security at the Center for Strategic and International Studies, told the Washington Examiner.

Siegle noted that wealthier countries, such as Saudi Arabia and the United Arab Emirates, likely have the ability to restore their operations “relatively quickly,” particularly as they leveraged alternative pipelines and transit routes to export oil outside the Strait of Hormuz.

Even nations such as Kuwait and Iraq might be able to resume operations, depending on the damage. But Siegle said analysts still need to determine the extent of the damage.

Hypothetically, if there were no damage done to the oil fields and infrastructure in the Gulf region, he said, it could take companies a matter of weeks to resume tanker and export operations.

“But, I don’t think that’s the situation,” he said. “I think it’s reasonable to expect that after four months of war, that there is significant damage. And those operators will probably take some time to assess the relative safety of operating the Gulf before … they get to ramping up.”

Hunter Kornfeind, an analyst with Rapidan Energy Group, told the Washington Examiner his sense is that the Gulf States could return to the majority of curtailed production by the fourth quarter of this year.

“Restoration timelines will vary by producer,” he said via email.

How fast will drivers feel price relief?

As of Monday afternoon, international and domestic crude prices had dropped to the low $80s.

The decline bodes well for future gasoline prices, which peaked around $4.56 a gallon at the end of May.

Patrick De Haan, head of petroleum analysis for GasBuddy, told the Washington Examiner that the national average price of gasoline was down about 12% from one month ago. Oil, up to last week, was also down by around 12.4%.

“It’s been pretty close,” he said, adding that the recent drop in oil prices will continue to put downward pressure on gasoline.

If the MOU is signed at the end of the week, some experts say they believe prices at the pumps will drop “reasonably quickly.”

Murti told the Washington Examiner that another factor to consider is whether there is lasting damage to global refining capacity.

STRATEGIC PETROLEUM RESERVE DROPS TO LOWEST LEVEL SINCE 1983 AMID IRAN FALLOUT

“The only reason that U.S. gasoline prices might not fall as quickly would be as there continues to be refining turmoil,” Murti said. “But otherwise, we would expect gasoline prices to fall on an equivalent basis as the crude reduction. That’s usually pretty quick and pretty…When we talk about a lag, we’re talking about days and weeks, not anything more than that on gasoline.”

As of Monday, AAA was still reporting the national average price of gasoline above $4, sitting at $4.065 a gallon. Diesel was averaging at $5.197 a gallon.