The preliminary deal to end US-Israel war on Iran has sent oil prices tumbling to a three-month low amid hopes that the Strait of Hormuz will reopen.
But it could be months before American consumers see major relief at the petrol pump.
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The closure of the strategic chokepoint disrupted global energy markets for more than three months, cutting off a major shipping route through which roughly one-fifth of the world’s oil and liquefied natural gas normally passes.
On Sunday, US President Donald Trump said prices would “drop like a rock” once the strait reopens, a claim he has made multiple times in the past few weeks.
However, experts caution that a major decline in prices is unlikely to happen as quickly as Trump suggests.
While Asian markets rely more heavily on oil shipped through the Strait of Hormuz than North American markets, tighter supply and steady demand have pushed prices higher worldwide.
On Monday, petrol prices in the US remained above $4 per gallon (3.78 litres), averaging $4.06 nationwide, according to the American Automobile Association (AAA). This was a dip from a high in early May of $4.48 per gallon.
By comparison, prices stood at $2.98 per gallon on February 28, when the US and Israel first struck Iran, triggering a ripple effect across global energy markets.
Energy prices have risen sharply in the US in recent months, increasing 7.7 percent over the last two months alone, and are up 40 percent from a year ago, according to last week’s inflation report from the Labor Department’s Bureau of Labor Statistics,
However, prices are beginning to fall, a dip that began as Washington and Tehran entered negotiations.
“The potential deal that the US and Iran agreed to over the weekend certainly could pave the way for even lower prices… in the next two to three days by what we saw over the weekend,” Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks petrol prices, told Al Jazeera.
But De Haan expects a plateau and says that consumers may not see gas prices at pre-war levels until 2027, even if the ceasefire holds.
“It may take many months, if not beyond a year, for global oil inventories to recover to pre-war levels,” De Haan said.
Amid strains on the supply chain, producers will also need time to ramp up output, while port bottlenecks and heightened demand during the busy summer travel season could delay any substantial relief for everyday consumers.
“There are some mitigating factors that are going to slow the decline in prices. There are a lot of organisations and companies that have to re-up their stockpiles [like the US’s strategic petroleum reserve] and fulfil contracts that have been on hold for the last few months,” John Deal, managing director of capital markets at the Post Oak Group investment bank, said.
Supply chain strains
Fixing kinks in the supply chain takes time.
Oil production slumped amid the war. More than 14 million barrels per day, or 14 percent of the world’s demand, has been shut, according to the International Energy Agency.
Deal said it would take time to get oil production back online.
“My sense is that there’s going to be sustained high demand through the summertime, and we probably won’t get back to pre-war levels [on petrol prices] until after the summer, maybe September or October,” Deal said.
Mark Jones, a professor of political science at Rice University, said that producers might be reluctant to bring full operations back online until they can see the ceasefire hold.
The agreement opening the blockade is for a 60-day negotiation period between the two countries.
“Many [producers] may be reluctant to restart production until they are convinced that the peace will hold, because the last thing they want to do is carry out the costly effort to restart production only to see the conflict revived and then have to shut it down once again,” Jones told Al Jazeera.
Getting production back online is also dependent on the impact individual producers have faced throughout the war.
Refineries that were shut as a precaution could reach as much as 95 percent capacity within 40-60 days, Vitol Bahrain’s head of research, Bader Nooruddin, told the Reuters news agency. Those damaged in the fighting could take much longer.
But bottlenecks at ports could be the biggest hurdle, according to Deal.
“There’s a lag time with shipping capacity. Shipping capacity is perhaps the most significant constraint,” Deal said.
This is because there are more than 500 ships still awaiting passage, according to shipping data from Kpler.
With the ships headed all over the world, it will take them weeks to reach their destinations, dock, and unload at the ports.
That also means a wave of empty ships is waiting in limbo for spots at ports to load cargo and ramp back up to normal operations.
Major shipping giants are in a holding pattern.
Norway’s Wallenius Wilhelmsen and Denmark’s Maersk both told Reuters that they have not changed their Middle East operations in the wake of the announcement.
During the war, there was limited passage through the Strait of Hormuz, with an average of 10 ships a day passing through, compared with 135 that normally transit the waterway, according to an analysis by Bloomberg.
“Tankers take months to reach their final destination and then come back again. So the ability to replenish the stocks is going to take until, I think, the early fall, just from a shipping perspective, to get back to the status quo that was in place before the conflict started,” Jones said, referring to the preferred term for the months of September through November in North America.
At the same time, US strategic reserves are running low, at their lowest levels since 1983. Reserves have tumbled by 18 percent since the war began.
“Demand might keep prices high through the summer as strategic reserves get refilled,” Deal added.
Jet fuel demand will also put pressure on consumers amid the normally busy JuneAugust travel season in the US.
“The war has really affected airlines and their ability to schedule and anticipate how the summer months are going to go,” Deal added.
In April, United Airlines CEO Scott Kirby said that airfares for the carrier may have to jump as much as 20 percent on higher fuel prices.
Grocery woes
The increase in prices is also hitting food budgets.
The most recent consumer price index report showed US inflation ticked up by 4.2 percent compared with this time last year. While inflationary pressures were mostly driven by fuel prices, the impact has still been felt at the grocery store.
Almost half of the world’s urea, which is used in fertiliser, is produced in the Gulf region and passes through the Strait of Hormuz. For American farmers, that means access to fertilisers for the next crop season is more expensive.
Tomato prices, already driven up by Trump’s tariffs on Mexico, have surged 40 percent in the last year amid rising transportation costs.
Lettuce prices rose by more than 16 percent in May, and the price of ground beef increased by about 12 percent compared with this time last year.
Jones warned that food prices may not go down.
“Many retailers, wholesalers, and producers will keep them where they are or only reduce them if forced to from a sales perspective. Unlike petrol, which tends to ebb and flow with the price of oil, prices for many other goods that have been adversely affected by all of this are much less likely to return to where they were prior to the start of the conflict,” Jones said.
“For groceries, for manufacturing goods, for anything that has gone up during the conflict, the price that is there now often becomes the new baseline from which prices move in the future.”
This can be compared with the COVID-19 pandemic period. When the pandemic stalled supply chains, producers increased prices. A 2024 investigation by the Federal Trade Commission found that retail grocers kept prices elevated after supply chain constraints brought on by the pandemic had eased.
“Some in the grocery retail industry seem to have used rising costs as an opportunity to further raise prices to increase their profits,” the report said.
