The Iran war’s
disruption to global crude oil and LNG markets is already being
measured in lost barrels and higher prices. Now, with a
U.S.-Iran peace deal expected to reopen the Strait of Hormuz,
the reckoning begins: was this a watershed moment, or merely
another blip?
Consider two precedents.
The Volkswagen “Dieselgate” scandal over rigged
emissions tests in 2015 seemed innocuous at first, but signalled
the demise of diesel passenger cars and the rise of electric
vehicles (EVs).
By contrast, Russia’s 2022 invasion of Ukraine caused a
dramatic surge in energy prices, yet the market’s ability to
reroute flows and absorb the shock meant the impact proved
short-lived.
Certainly, the market has so far worked its magic in dealing
with the effective closure of the Strait of Hormuz since the
U.S.-Israeli attacks on Iran began on February 28.
At least 1 billion barrels of crude oil and refined products
have been lost from Middle East producers such as Iraq, Kuwait,
the United Arab Emirates and Iran itself.
As much as 20% of global liquefied natural gas supply is
also trapped in the narrow waterway between Iran and Oman.
A combination of strategic and commercial inventory releases
and a dramatic reduction in imports by China, the world’s
biggest crude importer, has helped keep benchmark Brent crude
futures under $100 a barrel for much of the current
crisis.
It could also be argued that optimism about a deal to reopen
the Strait has played its part, with traders seemingly willing
to believe President Donald Trump’s numerous social media posts
that an agreement was imminent.
That long-awaited deal began to materialise on Sunday when
the U.S. and Iran announced they had agreed on a framework that
could allow vessels to resume transit. By Monday, Trump said oil
tankers were starting to move out of the Strait.
While full details of the agreement have yet to be publicly
revealed, the prospect of tankers soon entering and exiting the
waterway without hindrance raises the question of what happens
next.
The first effect would be a short-term sugar hit of relief
for energy markets as tankers trapped in the Gulf exit and
deliver cargoes.
This would be followed by efforts to restore flows and
supply chains to pre-war levels, and by the longer process of
rebuilding depleted inventories.
This could mean crude oil and LNG prices stay higher for
longer as the lost barrels are replaced, but much will depend on
how rapidly Middle East producers are able to ramp up output and
exports, and whether the OPEC+ group is actually able to pump
the higher volumes it has agreed to produce.
BEHAVIOUR CHANGES?
But the bigger question is what the long-term impact will
be.
Much will depend on the view taken by both consumers and
governments, especially in energy-hungry Asia, the
fastest-growing region.
Consumers who have the ability to change are likely to
consider switching to electric or hybrid vehicles to insulate
themselves from future diesel and gasoline price shocks.
An early snapshot of how this may look is provided by
Australia, the world’s biggest importer of diesel and a country
reliant on overseas refineries for over 80% of its fuel
requirements.
Australian EV sales hit a record high in May, with a market
share of 20%, and when combined with hybrid vehicles, the share
climbed to 46%.
This is approaching levels in China, the leading EV
manufacturer, where EVs and hybrids accounted for more than 50%
of sales in 2025, and rose to 60% in May this year.
Government policies are also likely to shift in favour of
boosting renewables and electrification over fossil fuels.
Dieselgate saw the motor fuel fall out of favour, especially
in Europe, where its share of passenger car sales dropped from
around 52% in 2015 to under 10% by 2025.
Asian countries such as Vietnam are already putting in place
policies to encourage EVs and electric scooters, and that
momentum is likely to grow across the region.
LNG is also at risk in Asia as countries weigh the security
risks of an imported fossil fuel against buying solar panels,
wind turbines and battery storage from China, or developing
domestic industries with Chinese backing.
One fossil fuel that may emerge as a long-term winner from
the current crisis is coal.
Countries with vast domestic reserves, such as China, India
and Indonesia, will be tempted to keep using the fuel given its
cost advantage and supply security, even if it makes reducing
carbon emissions more challenging.
Importing countries may also deem coal a safer bet, given
that the major exporters – Indonesia, Australia and South Africa
– have traditionally been reliable suppliers and that shipments
aren’t at risk from chokepoints like the Strait of Hormuz.
However, a long-term shift away from crude oil and LNG isn’t
assured, as producers and exporters of these fuels are unlikely
to take their demise lying down.
Getting people to forget the last crisis may be as simple as
ensuring prices drop rapidly and stay low for an extended
period. The early market reaction -with Brent tumbling 4% to $83
on the deal announcement – suggests that process may already be
underway.
If diesel and gasoline vehicles are cheap to refuel and LNG
can compete with coal and renewables, it’s possible that
governments and consumers will forgive and forget the disruption
and costs of the Iran war, much as they did after previous
conflict-induced price spikes.
(Written by Clyde Russell. The views expressed here are those of the author, a columnist for Reuters.)