Oil Prices Drop to Three-Month Low as Strait of Hormuz Reopening Faces Multiple Hurdles
Alina Collins
A pending US-Iran interim deal has pushed WTI below $77 a barrel — down 16% in four sessions — but the Strait of Hormuz faces mines, safety risks, jurisdiction disputes, and infrastructure damage that could keep physical flows well behind the pace futures have already priced in.
Why did oil fall so far in four days?
WTI slipped below $77 a barrel, losing 16% over four sessions — the longest losing streak this year. Brent settled near $79, both at three-month lows.
The market's core bet: an interim US-Iran agreement set for signing this Friday will reopen the Strait of Hormuz — the chokepoint for roughly one-fifth of the world's oil and LNG — and unleash a wave of pent-up Iranian crude.
This means → futures are front-running a supply recovery, but how fast barrels actually flow back is what determines whether this sell-off has gone too far.
What is in the deal?
Bloomberg reports the interim agreement contains 14 clauses. Key terms: Iran ensures merchant-ship passage, the US lifts its own Hormuz blockade, and Washington issues sanctions waivers covering Iranian crude, petrochemicals, and related financial, insurance, and shipping services.
The deal also opens a 60-day formal negotiation window aimed at ending hostilities and imposing strict limits on Iran's nuclear programme.
In plain terms = the deal is a temporary key — it lets ships pass and oil sell, but lasting peace and the nuclear question still have to be hashed out over the next two months.
Are actual inventories building or shrinking?
Against the "supply is about to surge" narrative, US crude inventories actually fell by 8.3 million barrels last week, with the Cushing hub — the main US crude delivery and storage point — showing an especially sharp draw. Official data are due Wednesday.
Dennis Kissler, senior VP at BOK Financial Securities, noted: "Most traders still think the US Navy will escort ships in the first weeks, with minesweepers on site, slowing transit."
This reflects a disconnect: futures have priced in "supply is coming back," but physical inventories are still tightening — short-term fundamentals and forward expectations are pulling in opposite directions.
How hard is it to reopen the strait?
Mines — Iran is believed to have mined the normal shipping lanes, forcing vessels onto coastal alternatives. Clearing the central channel could take weeks, and it remains unclear who will do it or how minesweepers will be protected.
Safety — fighting has not fully stopped since the April 8 ceasefire. The UN's International Maritime Organization (IMO) counts at least 14 seafarer deaths and 46 ships damaged. Several shipowners say some crews may refuse to return to the Persian Gulf, reducing the pool of available vessels.
Jurisdiction — Iran's semi-official Fars News Agency says future "navigation services" will be managed jointly by Iran and Oman, but shipowners do not want to deal with Iranian authorities still under US sanctions. The Baltic and International Maritime Council (BIMCO) has called for a UN agency or neutral-state coordinator.
Tolls and infrastructure — who pays?
President Trump says ships will not be charged, but Iran says the free-passage window lasts only 60 days. The UN IMO sees no legal basis for tolls, and the US has said payment would trigger sanctions. Chevron CEO Mike Wirth stated explicitly that the company will not consider paying for passage.
Infrastructure is the deeper bottleneck: Rystad Energy estimates rebuilding the region's oil-and-gas facilities will cost roughly $42 billion.
In plain terms = even after the deal is signed and ships can transit, restoring the pipelines, terminals, and loading facilities damaged by the conflict still requires serious money and time.
When does supply actually come back?
Prediction market Kalshi puts the probability of Hormuz flows returning to normal at 51% by August 1 and 68% by September 1.
Rystad analysts expect tanker redeployment to take about two months, with the bulk of output recovery concentrated in August–September and roughly 85–90% of lost production restored by early Q4.
This means → the market priced in "supply is back" in four days, but the physical recovery may not substantially arrive until late Q3 — that gap is the window in which oil prices could whipsaw.
Content is for reference only, not financial advice.