Ensuring safe passage of ships through the Strait of Hormuz, which accounts for about 20% of the world’s oil spills, is a key element in negotiations for a peace agreement with Iran.
Oil prices have soared since the war began, largely due to the inability of ships to pass through the strait. Brent crude oil prices rose 3.17% on Sunday to $104.50 a barrel, while U.S. crude oil prices rose 3.21% to about $98.48 a barrel. Last month, Goldman Sachs predicted that Brent crude oil prices would remain above $90 a barrel until at least the end of the year.
The oil disruption has pushed the average price of gasoline in the U.S. to $4.52 a gallon, according to AAA.
Trump administration officials have repeatedly framed the Iran war as short-term pain for long-term gain, as consumer sentiment reaches record lows.
On Sunday, U.S. National Economic Council Secretary Kevin Hassett told Fox News that consumers and businesses would face higher costs “in the short term” as the Iran war drives up oil and gas prices, but once the strait is fully open, large amounts of oil will be released into the market and prices will fall.
Mr Hassett said reopening the strait “could take a month or two”. “But basically, we expect that once the blowout starts, oil prices could fall relatively quickly and certainly ahead of the (midterm) elections.”
Keep in mind: The drop in oil prices also depends on the resumption of oil production in the Middle East after companies shut down some wells during the war. This process may take several weeks. Oil companies have also warned that strikes targeting energy and oil facilities in the Middle East could take years to repair.
Analysts said last month that it could take up to a year for energy markets to recover from the disruption in the normal balance of supply and demand. Economists have warned that if the turmoil extends into the second half of the year, it could trigger a global recession.
