The Iran war may be winding down, but the era of $60 oil could be over

By Isabel Wang and Myra P. Saefong

When will oil prices return to pre-war levels? That isn't the right question to be asking.

A rising geopolitical risk premium may act like "an effective tax" embedded in oil prices for a prolonged period, one analyst said.

The Trump administration on Thursday signaled a deal to end the Iran war could be close. Oil prices, however, may not roll back to levels seen before the conflict very soon, if at all.

Oil analysts think the big question for markets right now isn't when oil prices will return to pre-war levels near $60 a barrel, but whether the energy world that created low prices still exists.

"Oil getting back to the $60 level is effectively off the table even if this latest peace deal somehow gets resolved," said Ben McMillan, chief investment officer at IDX Advisors. "There's a recovery period for oil supply of at least three months in the best case, probably six months before we get everything back online, and then there's going to be this baked-in geopolitical risk premium for oil that is going to endure for years."

Both the U.S. and global oil benchmarks on Friday were sliding after the report of a possible deal. West Texas Intermediate crude saw its most-active July contract (CL.1) (CLN26) trade below $87 a barrel, while Brent crude futures for July delivery (BRN00) (BRNN26) were off 2.3% to $90.60, according to FactSet data.

What needs to be figured out first is whether the forces holding crude higher over the past three months - disrupted tanker traffic through the Strait of Hormuz and damaged energy infrastructure in the Persian Gulf region, to name a couple - will permanently reprice the risk premium in the oil and oil-shipping industry. A risk premium is the extra cost built into a price for taking on additional risk or uncertainty.

These forces aren't just wartime noise, according to analysts, but structural shifts that a cease-fire can't simply unwind.

See: Here's the real story behind the record drop in America's oil reserves

The mechanics of normalization in the oil market are complex, since resuming global oil flows is less like flipping a switch than rebuilding an ecosystem completely disrupted by the war.

For one, tanker traffic through the Strait of Hormuz doesn't simply resume even if another cease-fire extension is confirmed, said Parag Sanghani, portfolio manager at Westwood Holdings Group, which specializes in energy infrastructure investments.

"We have so many of these headlines. The analogy would be 'the boy who cried wolf' - they say it so many times that no one believes it until investors actually see ships transiting the strait consistently with the blessing of both the U.S. and Iran, and that is what will indicate to the world that this is in fact over," he told MarketWatch in a phone interview.

Oil flows cannot simply snap back into place. Very Large Crude Carriers (VLCCs) diverted during the conflict have since been redeployed around the world, and it takes between two and three months to reposition oil tankers back to the Gulf, load crude and move those barrels around the world again, said Sanghani.

See: Here's a look at the known damage to Gulf energy facilities as the U.S. and Iran meet for talks

The logistical disruptions are only part of the story. The war has also brought sustained damage and operational strain to critical energy infrastructure across the Gulf. The actual extent of the damage remains difficult to assess, and may only be available once shipping through the strait resumes at scale.

Qatar estimates that three to five years will be necessary to repair the Ras Laffan LNG plant, which should be seen as the "longest or most pessimistic estimate for time to rebuild," as long as the cease-fire holds, said Matt Gertken, chief geopolitical and U.S. political strategist at BCA Research.

On top of that, the rising geopolitical risk premium is going to act like "an effective tax" embedded in oil prices for a prolonged period, driven by the increased cost of crude delivery, the search for alternative shipping routes and the expense of enhanced security requirements for tankers, McMillan of IDX Advisors said.

Months of closure to the strait, alongside occasional mine threats and attacks, have left shippers increasingly concerned about security. A full resumption of operations will also depend on the commercial shipping industry regaining confidence in the safety of the Persian Gulf.

"The shipping industry also needs to regain confidence in plying the Strait of Hormuz again and iron out all the issues related to war risk premiums,' said June Goh, senior oil market analyst at Sparta Commodities.

Ships will return to the Middle East from regions "far afield if they see the economic incentive to do so and sustained peace in the Gulf," Goh told MarketWatch on Thursday.

-Isabel Wang -Myra P. Saefong

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05-29-26 0924ET