--- title: "If the Strait of Hormuz Can Never Return to Its Past" type: "News" locale: "en" url: "https://longbridge.com/en/news/289250458.md" description: "HSBC believes the key issue for the Strait of Hormuz may not be \"when it will reopen,\" but rather to what extent normalcy can be restored. If transit remains managed over the long term, the crude oil supply gap could persist until 2027, potentially requiring oil prices to remain in triple digits to suppress demand. While bypass pipelines can alleviate crude export constraints, they struggle to address transportation issues for refined products and LNG. Inventories will continue to decline, but hitting bottom within \"a few weeks\" is not the base case; the true pressure point may not emerge until the fourth quarter of this year" datetime: "2026-06-10T00:24:11.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289250458.md) - [en](https://longbridge.com/en/news/289250458.md) - [zh-HK](https://longbridge.com/zh-HK/news/289250458.md) --- # If the Strait of Hormuz Can Never Return to Its Past Brent crude has fallen by nearly $20 per barrel since mid-May, as the market bets that US-Iran negotiations will bring a turning point. However, a ceasefire is one thing, while restoring free passage through the shipping lane to pre-conflict levels is another. A latest research report from HSBC's commodity research team, led by analyst Kim Fustier, raises a core question: > **"Market discussion needs to shift from when the strait will 'reopen' to what state the restoration of passage will take, and if transit continues to be managed, what constitutes a possible 'new normal.'"** Under this framework, if the Strait of Hormuz is neither completely closed nor fully open, but remains in a state of "partial reopening" for an extended period, **the oil market deficit could persist until 2027. If transit volume fails to recover to at least 60% of normal levels, oil prices may need to remain in the triple-digit dollar range, relying on demand destruction to rebalance the market.** **Bypass pipelines can alleviate some pressure, but they cannot eliminate the problem.** Pipelines in Saudi Arabia and the UAE can transport some crude oil around the Strait of Hormuz; however, there are no equally simple alternative routes for refined products and liquefied natural gas (LNG). Inventories are not an infinite buffer. According to calculations, inventory drawdowns may continue through the summer, only approaching the so-called "bottom of the tank" in the fourth quarter. ## A Peace Deal Does Not Mean Restoration of Pre-Conflict Shipping Conditions The implicit logic priced into the market is that once the US and Iran reach an agreement, passage through the Strait of Hormuz will return to pre-conflict conditions. However, in recent months, Iran has established a management framework around the strait. According to Xinhua News Agency, in May this year, Iran announced the establishment of the "Persian Gulf Strait Authority" to assert sovereign management over this waterway. Subsequently, on May 28, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) imposed sanctions on this entity: even without involving payments, reaching a "safe passage agreement" with Iran is considered a violation. This has created a deadlock: **Transiting without payment carries risks, while paying for passage violates US sanctions.** There are already signs that some industry participants are accepting this reality. In May, tankers from Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) passed through the strait; two Very Large Crude Carriers (VLCCs) heading to Japan successfully transited; a South Korean tanker passed through for the first time after coordinating with Iran; and a Greek shipping company even publicly stated, **"If paying facilitates passage, we would rather pay."** Daniel Yergin, Vice Chairman of S&P Global, described the current situation as a "gray area where it is neither completely closed nor fully open." Lloyd's List also pointed out that an increasing number of industry insiders believe that the state of free navigation prior to the crisis may not be fully restored. ## What the Strait's "New Normal" Might Look Like: Oil Prices May Need to Stay in Triple Digits as Long as a Deficit Exists The analysts' base case scenario is that the strait reopens in mid-June and recovers linearly to normal levels within three and a half months. However, the study also presents an alternative path of "partial reopening"—where Iran retains control, and traffic volumes recover only gradually and incompletely. For the crude oil market, the Strait of Hormuz does not necessarily need to recover to 100%, as pipelines can share part of the load. But if the recovery ratio is too low, the supply gap will remain unmanageable. Several third-party institutions have calculated scenarios as follows: - **Kpler**, in its "Iran Control" scenario released on April 29: Transit volume may recover to 40% of previous export levels by the end of 2026, stabilizing at around 45% by the end of 2027. Frictions arise from approval processes, mandatory routing through Iranian waters, and potential toll payments to the Islamic Revolutionary Guard Corps. - **Rystad Energy**, in its "Narrow Agreement" base case scenario released on May 26: By the end of 2026, crude flow through the Strait of Hormuz will recover to approximately 10 million barrels per day (about two-thirds of pre-war levels), with an additional 5 million barrels per day bypassing via pipelines. - **S&P Global** Vice Chairman Daniel Yergin stated on June 3 that strait transit might fall into a "gray area where it is neither completely closed nor fully open." US sanctions against the "Persian Gulf Strait Authority" could cause a deadlock: without paying fees, passage becomes difficult or dangerous; with fees, shipowners fear US sanctions. - **Lloyd's List** assessment: Free navigation prior to the crisis may not fully return. The final state could be a "managed strait" under Iranian control, including mechanisms such as identity checks, tiered access by nationality, and fee collection; **transit volume recovering to about 60%-70% of pre-war levels.** **** This is the watershed moment for oil prices. **If recovery is only 40%-45%, the deficit will persist until 2027**. If Hormuz flows return to about 9 million barrels per day, combined with bypass pipelines, total Gulf exports would be around 14 million barrels per day, leaving a deficit of 5-5.5 million barrels per day compared to pre-war levels. Global inventories cannot decline indefinitely, implying that demand destruction needs to be about 2 million barrels per day higher than the current 3-4 million barrels per day. **If recovery reaches 60%, the situation improves but remains challenging.** By mid-2027, if Hormuz flows return to 12 million barrels per day, combined with bypass pipelines, total Gulf exports would be 15-16 million barrels per day; in the second half of 2027, if the UAE pipeline expansion becomes operational, total exports could rise to 17.8 million barrels per day. However, this still leaves a deficit of about 2 million barrels per day. **To eliminate the deficit, either part of the demand destruction must become permanent, or supply growth must accelerate, such as through accelerated production increases in US shale oil.** The conclusion is: **As long as the market is in deficit (recovery below 60%), oil prices need to remain in triple digits to continuously suppress demand and drive market rebalancing.** ## Bypass Pipelines Are Expanding, But Cannot Solve All Problems Gulf oil-producing countries are not waiting idly for the strait to reopen but are accelerating the expansion of land-based alternative routes: - **Saudi East-West Pipeline** (capacity of 7 million barrels per day): Has been running at full capacity since mid-March, exporting an additional 3-4 million barrels per day via the Yanbu port on the Red Sea. - **UAE ADCOP Pipeline** (leading to Fujairah port outside the strait): Current capacity is 1.5 million barrels per day, with actual operations reaching 1.8 million barrels per day. On May 14, ADNOC announced an accelerated expansion, aiming to double capacity to over 3 million barrels per day by 2027, with construction currently 50% complete. The combined structural capacity of the two pipelines is approximately 5-6 million barrels per day. Analysts calculate that if Hormuz flows recover to 14 million barrels per day (about 70%-75% of pre-war levels), coupled with the above pipelines running at full capacity (including the ADCOP expansion), most of the Middle East's crude oil exports can basically be restored. Additionally, more projects are underway: Iraq is constructing a new pipeline, 700-800 kilometers long with a capacity of 2.2-2.5 million barrels per day, extending from Basra to Haditha, and then exporting to the Mediterranean via Syria, Jordan, and Turkey; Kuwait is discussing pipeline cooperation with Saudi Arabia and the UAE, as Kuwait currently has almost no bypass options, and its oil exports have nearly dropped to zero. **But there is a key limitation**: New crude oil pipelines can only solve crude export issues, not the transportation of refined products (gasoline, diesel, jet fuel) and LNG—these two product categories require specialized facilities that pipelines cannot replace. ## Inventory "Bottoming Out" Is Not a Matter of Weeks Inventories are the second main thread in this pricing narrative. Some voices in the market believe global inventories are about to hit bottom, but analysts' calculations provide a different timeline. Global observable inventories are expected to fall from about 7.95 billion barrels in April to about 7.5 billion barrels in June, and about 7.4 billion barrels in July—this will be the lowest level in over a decade. - **In the base case scenario (normal reopening of the strait),** global inventories will bottom out at about 7.3 billion barrels in August, starting to rise from September, with year-end inventories about 630 million barrels lower than the February peak of 8.2 billion barrels. - **In the "partial reopening" scenario,** global inventories will continue to decline to about 7.0 billion barrels by December 2026, about 1.2 billion barrels lower than the February peak, and will not recover to June's levels until September or October 2027. - **Regarding the specific timing of "bottoming out,"** analysts used the US as an example for calculation: The US National Petroleum Council historically defined 300 million barrels as the "minimum operating requirement" for crude oil inventories (about 78% of commercial inventories at the time). Extrapolating based on the same ratio, current US commercial crude oil inventories are 434 million barrels (as of the week ending May 29), corresponding to a minimum value of about 337 million barrels. At the current rate of consumption, US inventories are expected to bottom out around **October 2026**; global inventories are expected to bottom out around **the end of 2026**. This differs significantly from the judgments of some market participants: - Jeff Currie of Carlyle Group believes US inventories may touch minimum operating levels in the summer (July); - Neil Chapman, Executive Vice President of Upstream Business at ExxonMobil, stated on CNBC on May 28 that the world is "approaching unprecedentedly low inventory levels... within two to three weeks"; - Fatih Birol, Executive Director of the International Energy Agency (IEA), stated on May 21: If the situation does not improve, we may enter the red alert zone in July or August. HSBC's stance is: **Inventory levels falling to the lower end of the five-year range does not in itself constitute an "imminent crisis signal"; the true pressure point will not emerge until the fourth quarter of this year.** ## Demand Destruction Is Insufficient, Price Pressure Remains Currently, the reaction on the demand side is relatively mild. OECD demand has only declined slightly, with weakness concentrated mainly in Asia (South and Southeast Asia) and the Middle East. US gasoline and diesel demand is flat year-on-year, and major road fuel demand in Europe has only decreased slightly, with the decline in Europe mainly driven by petrochemical feedstock demand, more due to supply constraints than price drivers. Vitol estimates current demand loss at 4-5 million barrels per day, higher than the IEA's previous estimate of 2-3 million barrels per day. 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