Oil & Energy
Strait of Hormuz Unlikely to Return to Normal Flows in June, RBC Says
Expectations that the Strait of Hormuz will quickly return to normal maritime traffic levels in June are based on "magical thinking" and underestimate the political and operational barriers to restoring flows, RBC Capital Markets strategists said in a note on Thursday.There is an emerging consensus that the Strait could reopen next month as economic pressure mounts, but there is little evidence that shipping volumes will recover to pre-Feb. 27 levels in the foreseeable future.RBC analysts said that oil market disruptions could persist well into the summer demand season.The analysts said assumptions of a rapid resolution rely on the belief that policymakers can easily "switch on" maritime traffic once costs become unbearable, a view that overlooks the strategic and security realities now embedded in the Middle East conflict.Though a large-scale US ground operation could reopen the Hormuz, RBC sees little political appetite in Washington for a prolonged Middle East military commitment, especially one involving over 100,000 troops and a potential regime-change objective in Tehran.Further military action is expected to fall short of a full invasion capable of changing control of the strategic waterway.RBC analysts also questioned expectations of a near-term diplomatic breakthrough, citing unresolved disputes over Iran's nuclear enrichment capabilities and uranium stockpiles.The analysts said even in the event of a deal, Iran's Islamic Revolutionary Guard would seek to retain leverage over the Strait, given its growing strategic importance."The Strait has become critical to deterrence dynamics," the analyst said, adding that Iran is unlikely to surrender what it now views as a key instrument of influence.RBC also cast doubt on the assumption that external actors, including China, would provide decisive pressure or capital to resolve the standoff, saying that Beijing may see strategic benefits in the current situation, including the redistribution of US military assets away from Asia.Under a scenario in which Iran retains operational influence over the waterway, the bank said global shipping flows could normalize only at structurally lower levels, potentially similar to the disruption seen in the Red Sea, where traffic remains about 56% below pre-conflict levels despite prior de-escalation agreements.The return to partial normalization even in such a scenario is expected to take time due to vessel rerouting, logistics constraints, and persistent security risk premiums.RBC forecasts that, under a sustained disruption scenario, crude losses could exceed 1 billion barrels by the end of the month and reach 1.5 billion barrels if conditions persist into June.The bank said that crude prices could eventually exceed levels seen during the Russia-Ukraine crisis and approach 2008 peaks as summer demand tightens balances.