The United States and Iran agreed to a two-week truce, but projections say the global energy market is unlikely to avoid a prolonged supply crunch. With key energy facilities in the Middle East heavily damaged, analysts say even if the Strait of Hormuz reopens, the impact will be limited.
Earlier, U.S. President Donald Trump said on the 7th that the United States would halt attacks on Iran for two weeks on the condition that Iran opens the Strait of Hormuz. With that, the two sides reached a dramatic deal 90 minutes before the deadline for talks, by which Trump had threatened to "obliterate Iran," and paused for breath 39 days after the war began. The first armistice talks are set to take place on the 11th in Pakistan.
On the truce news, international oil prices, which had been surging for days, showed signs of stabilizing. On the London ICE Futures Exchange, June delivery Brent crude fell 13.29% from the previous session to $94.75 per Barrel, marking the biggest one-day drop since March 2022. On the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) also closed down 16.41% at $94.41, which is seen as the largest drop since April 2020.
However, it is expected to take considerable time for prices to return to the $60 level before the war. A prior Iranian missile and drone attack severely damaged dozens of refineries, oil fields and natural gas export terminals across the Middle East, and the shutdown of some refineries has disrupted supplies of refined products such as diesel, gasoline and jet fuel. On top of that, with export facilities such as ports destroyed, bottlenecks are emerging that prevent even produced crude from being shipped.
On this, the International Energy Agency (IEA) said, "We estimate that more than 40 key energy facilities have been damaged, and an unprecedented supply crunch in history will occur." Energy consultancy Rystad Energy projects that at least $25 billion (about 37 trillion won) will be needed to restore Middle Eastern energy infrastructure.
By country, the United Arab Emirates (UAE) suffered a rash of damage at the Ruwais Industrial Complex, a refining and petrochemical hub, causing major disruptions to refined product output. The complex, a core facility of state-run Abu Dhabi National Oil Company, has a daily crude refining capacity of 922,000 Barrels, reportedly ranking among the world's top five. In particular, a pipeline runs to Fujairah Port in the east, enabling exports of about 1.5 million Barrels of refined products a day, an amount equivalent to half of Korea's daily crude consumption as of 2023.
Bahrain, known as the "refining hub of the Middle East," declared "force majeure (a clause excusing nonperformance of contractual obligations)" after Iran's attack. On the 9th of last month, state-run Bahrain Petroleum Company (BAPCO) announced a fire at the Al-Mamir refining facility, saying "regional conflict is disrupting company operations," with an Iran-launched drone strike cited as the cause. Bahrain's crude output is small, but it processes and re-exports products, shipping diesel and jet fuel to Singapore, India and South Africa, and re-exporting some products to Saudi Arabia.
Kuwait's Mina Al Ahmadi refinery also caught fire after an Iranian drone attack, resulting in shortages of marine and aviation fuel in Asia and Europe. Last month, the chief executive officer (CEO) of Kuwait Petroleum Corporation (KPC) said, "It will take three to four months to normalize production."
Damage in the liquefied natural gas (LNG) sector is also severe. At Qatar's Ras Laffan LNG complex, about 17% of production capacity is estimated to be lost, and restoration is expected to require at least more than four years and $10 billion in expense. That is because replacing core equipment such as cryogenic heat exchangers alone takes more than a year, and significant lead times are expected for supplies such as gas turbines.
Eurasia Group expects oil prices to stay above $80 per Barrel this year. Researcher Henning Gloystein said, "Even if the Strait of Hormuz reopens, supply pressures will persist," adding, "One-third of the Gulf's refining capacity has been damaged, and restoration alone will take months."
Fraser McKay, a consultant at Wood Mackenzie, said, "A $100 billion investment plan in the Middle East is set to be eaten up by the restoration of energy facilities," and noted, "The restoration process could take longer than expected due to labor shortages from the withdrawal of Western personnel and a lack of equipment."
Meanwhile, although the United States and Iran signed a truce predicated on opening the Strait of Hormuz, some say traffic through the strait still has not improved. Iran is demanding that ships pass only after prior coordination with the Islamic Revolutionary Guard Corps (IRGC), its elite military organization, and it is said that transiting vessels must pay expenses in cryptocurrency or Chinese yuan.