The deal between America and Iran to end the four-month war in the Middle East brings with it the prospect of an end to the economic turmoil which has seen the price of items from petrol to foreign holidays soar.
At the heart of the expected signing on Friday of the US peace agreement with Tehran is the quid pro quo for Gulf countries, and the rest of the world, that would see the reopening of the Strait of Hormuz – the maritime chokepoint whose closure has throttled a substantial portion of the world’s supply of oil, gas and other vital commodities.
The unblocking of the strait , behind which at least 1,250 vessels have been trapped since the US-Israeli strikes on 28 February, would restore a sea route which had carried about a fifth of the world’s oil and gas supply, including about 40 per cent of Europe’s jet fuel.
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The result is a potential reversal of months of bad news for British consumers , bringing with it falling fuel prices and an easing of supply chain constraints. As Donald Trump put it on his Truth Social platform on Sunday: “Ships of the World, start your engines. Let the oil flow!”
But experts warn a deal is far from guaranteed , not least because while the memorandum of understanding with Tehran ends any attempt by Iran to charge a toll on the Strait of Hormuz, it technically only does so for the 60 days in which a permanent peace is supposed to be negotiated.
How quickly – and permanently – will the Strait of Hormuz reopen?
This is the $600bn – the annual value of trade through the strait (£447bn) – question surrounding the putative deal to be signed in Switzerland on Friday.
As Neil Shearing, chief economist at City-based analysts Capital Economics, put it: “It remains to be seen whether the deal with Iran represents a fragile truce or durable settlement.”
Experts say a return to anything approaching pre-war trade levels in the Persian Gulf will take a minimum of a month to 45 days, and could possibly take much longer if operations to clear mines laid by the Iranians prove tricky.
Saleem Khan, chief analytics officer with shipping data firm Pole Star Global, pointed out that previous openings of the strait in April and May had seen most ships and their owners wait for confirmation that the sea route is reliably open before attempting voyages.
He said: “The least risk-averse owners will take advantage of the opening soon after it happens, but the majority will wait for confirmation on mine clearance, insurance and other sources before they begin to transit.”
Pump prices set to fall
Just as rocketing prices for petrol and diesel have been the most obvious consequence of the Iran crisis, there are grounds for expecting that a fall in what drivers pay at the pump will be among the first dividends of a reopening of the Strait of Hormuz.
Motoring organisation the RAC said it expects the price of petrol to fall from its current average of 156p per litre to 148p within the next fortnight, and diesel to similarly fall from 177p to below 160p.
Along with other experts, it noted that falls last week in the price of crude oil in anticipation of the agreement between Washington and Tehran had already provided the circumstances for forecourt prices to fall.
Crude oil prices have already come down following news of the US-Iran peace deal – this will soon reflect at the pump with lower prices for petrol and diesel, experts predict (Photo: Alishia Abodunde/Getty)
The question remains of when, or even if, the costs being borne by motorists will return to their pre-war levels of 132p for petrol and 141p for diesel, based on an oil price of $70 per barrel.
According to an RAC analysis, the Iran crisis has cost UK drivers a little over £4bn in higher fuel costs. At the same time the Treasury has netted an additional £670m in VAT above and beyond what it would have received if prices had remained as they were.
Uncertainty over the rate at which oil shipments will pass through the Strait of Hormuz and the likelihood of enduringly raised shipping insurance costs mean there is an expectation in markets that a return to a $70 oil price will not happen quickly, if at all.
As one analyst put it: “Consumers should be prepared for slow relief as inflationary pressures continue to ripple through supply chains.”
Food prices – baked-in inflation
While much of the focus of the ramifications of the closure of the Strait of Hormuz has been on oil and gas, the impact on commodities such as fertiliser has been just as severe.
Roughly a third of global fertiliser needs, in particular ammonia and urea, passes through the Gulf and its interruption has forced growers around the world to either seek alternative supplies at higher prices or simply use less of the chemicals vital to maintain agricultural yields.
In Britain, farmers have had to deal with a rise in fertiliser prices of between 50 per cent and 70 per cent, hitting greenhouse and arable operations. The result is that what is grown is cost…
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