A 'full normalization scenario' for oil is still out of reach - even with the Strait of Hormuz now open

By Myra P. Saefong and Isabel Wang

Ship traffic might not rebound to preconflict levels just yet

"It's not as simple as just saying the strait is open. There are lots of logistical issues that need to be taken into consideration as well," said analyst Edward Meir of Marex.

About seven weeks after the start of the conflict in the Middle East, Iran announced on Friday that a crucial maritime passageway for seaborne oil was "completely open" for commercial vessels - but only as long as the Lebanon-Israel cease-fire agreement is in effect.

There's far less clarity to the news than the market is pricing in, said Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth. Details around how the resumption of ship traffic through the Strait of Hormuz would work, including routes, coordination and duration, are "very unclear."

Despite the development, it feels as if the market is still in the same dynamic it's been in all along, she said. "Headlines are moving a lot faster than barrels."

Still, reopening Hormuz opens the door for a broader lift in sentiment, according to Nigel Green, chief executive officer at deVere Group. "After a period of heightened tension, investors are inclined to take that signal and run with it," he said.

In a post on X, Iranian Foreign Minister Abbas Araghchi said: "In line with the ceasefire in Lebanon, the passage for all commercial vessels through Strait of Hormuz is declared completely open for the remaining period of ceasefire," with ships expected to use a "coordinated route" as already announced by Iran's Ports and Maritime Organization.

The U.S.-backed 10-day Israel-Lebanon truce took effect on Thursday, meaning it will expire on April 26.

Reopening Hormuz gives markets a "credible reason" to lean more positively in the near term, Green told MarketWatch. The assumed resumption in the flow of maritime traffic through the passageway was good news for the U.S. stock market and helped ease concerns over a global shortage of oil. Benchmark stock indexes rose on Friday, supported by what looks to be progress toward a resolution of the U.S.-Israeli war with Iran that began on Feb. 28.

Oil prices fell sharply, although both U.S. (CL.1) and global benchmark crude (BRN00) remained well above their preconflict trading levels near $70 a barrel. May West Texas Intermediate (CLK26) settled at $83.85 a barrel Friday, down 11.5%, while June Brent (BRNM26) fell 9.1% to $90.38.

"The market is already looking through this toward a 'full normalization' scenario," Babin said, adding that what's more likely in the near term is "something choppier: partial openings, uneven flows, and limited volumes actually moving."

See: U.S. oil prices plunge to around $80 a barrel after Iran declares Strait of Hormuz 'completely open' during cease-fire

The next leg lower for oil prices could come about when the markets get a sense of just how many tankers are passing through the strait, Edward Meir, an analyst at Marex, told MarketWatch.

He noted, however, that there may still be some mines on the Iranian side of the strait, and insurance companies will remain reluctant to provide coverage for vessels transiting through the waterway.

He pointed out that the Norwegian Shipowners Association, a trade and employers' organization for Norway-affiliated shipping companies, has said that several factors need to be clarified before any transit though the strait can be assessed, including the presence of sea mines, Iranian conditions and practical implementation, according to a report from the Times of Israel.

Overall, "it's not as simple as just saying the strait is open. There are lots of logistical issues that need to be taken into consideration as well," Meir said.

When asked Friday if there has been an uptick in ships passing through Hormuz, Matt Smith, U.S. head analyst at Kpler, said that "it is too soon to say."

"This could be a nothing burger," he noted.

'This could be a nothing burger.'Matt Smith, Kpler

Indeed, Robert Yawger, director of energy futures at Mizuho Securities USA, said investors have yet to receive any confirmation about the reopening of the Strait of Hormuz from the Islamic Revolutionary Guard Corps, which has said in the past that it would "never do a deal with the devil."

"There's the likelihood of them doing something that is outside the cease-fire objective and sabotaging the deal, so I'm still looking for any rhetoric from the hardliners within the IRGC who are going to say now they're on the verge of getting a deal done, supposedly," he told MarketWatch via phone on Friday.

In addition, the cease-fire discussion between the Lebanese government and Israel doesn't directly involve Hezbollah, the Iranian-backed militant group in Lebanon. Yawger said he is "certain there's going to be elements inside Hezbollah who are reluctant to give up the fight," so it will be important to see whether those voices become more prominent.

Shortly after Araghchi's social-media post, U.S. President Donald Trump said in a Truth Social post that while the strait is completely open, the U.S. naval blockade will "REMAIN IN FULL FORCE AND EFFECT" as it pertains to Iran, "UNTIL SUCH TIME AS OUR TRANSACTION WITH IRAN IS 100% COMPLETE."

The Iranians, meanwhile, "have also spelled out what it will take to keep the strait open: no further attacks on Lebanon," said Kathleen Brooks, research director at XTB.

"This is the line in the sand for now, and no doubt the international community will focus its attention on ensuring Israel does indeed hold to the terms of the cease-fire and efforts are made to extend it beyond 10 days," she said.

On Friday, Trump said in a Truth Social post that the process of the "transaction" with Iran, referring to a potential peace deal, should go very quickly because most of the points have already been negotiated.

-Myra P. Saefong -Isabel Wang

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04-17-26 1628ET