As usual, a very informative note from RBC Capital Markets head of global commodity strategy Helima Croft.
While markets, especially the oil market, appears to be pricing in a done deal with Brent around $US83 a barrel, Croft and her team are urging more caution about Middle East supplies getting back to pre-war levels.
“While we anticipate an increase in traffic as ships look to exit after 100+ days on the water in the Gulf, we think it will take months to reach anything close to February 27 levels (especially if the security environment remains unsettled) and that peak Hormuz flows may actually be in the rearview mirror.”
A key sticking point is likely to remain Iran’s continued claim of control over the Strait of Hormuz and its future ability to potentially charge fees to ships passing through.
“As it stands now, Iran is continuing to insist that it retains operational control of the Strait and that it will charge a ‘maritime service fee’ following 60 days of toll-free passage,” Croft notes.
“If this stands, it appears to represent a significant victory for Tehran, and we think it could indeed impede a full normalization of flows.
“We do envision that certain companies and countries will be willing to pay a service fee, as a handful are already doing so to access the Iranian Hormuz channel. However, we suspect that a number of Western companies will be unwilling to do so, especially as the IRGC will likely remain a sanctioned entity regardless of the outcome of Friday’s MoU.”
RBC points out that continued tensions in the region are likely to lead to ongoing caution in shipping oil and gas out of there.
“While we expect deal euphoria to persist post-signing, we still think the Red Sea could serve as a cautionary tale for a Hormuz reopening,” Croft concludes.
“Despite the deal inked between the US and the Houthis over a year ago, traffic remains around 50% lower than 2023 pre-crisis levels.
“Moreover, we think the actual term sheet specifics will be crucial for the durability of any MoU deal inked on Friday.”