DETROIT – A ceasefire between the U.S. and Iran is nearing its deadline, and the clock is ticking for global energy markets.
The closure of the Strait of Hormuz has removed an estimated 13 to 15 million barrels of crude oil and petroleum products from the market daily.
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Gas prices dip, but remain well above last year
There is some good news for drivers. As of Tuesday, the national average for regular unleaded gas sat at $4.02 a gallon, according to AAA — down 15 cents from the peak of $4.17 seen earlier this month.
Diesel prices remain even more painful, holding at or above $5 a gallon in most states.
Energy Secretary Chris Wright offered some measured optimism.
“Prices have likely peaked and they’ll start going down,” Wright said.
But he tempered expectations for a quick return to pre-war prices.
“That could happen later this year. That might not happen until next year,” Wright added.
What happens if a deal is reached?
Even under the best-case scenario — a lasting agreement before the ceasefire expires — drivers shouldn’t expect prices to snap back quickly.
Jason Miller, a supply chain analyst at Michigan State University, says the infrastructure simply isn’t ready for an overnight rebound.
“If a deal is made that actually lasts, the general sense is that crude oil prices are unlikely to fall much further than even where they’re at right now, because it is going to take months for infrastructure to be repaired in some instances, to get vessels over there through Hormuz, get them loaded, get them to market,” Miller said.
Miller uses a straightforward breakdown to explain the timeline. About 50 percent of capacity could be restored relatively quickly. Another 30 percent could come back online within a month or two. But the remaining 20 percent could take several months to recover.
“We’re not going to see $3 a gallon gasoline anytime soon on average in the United States,” Miller said.
The worst-case scenario
If no deal is reached and active military conflict resumes, the outlook turns significantly darker. Miller says a return to fighting — particularly if Iran targets regional energy infrastructure and Houthi forces attempt to close the Bab al-Mandab Strait between the Red Sea and the Gulf of Aden could send crude oil prices surging to $160 to $200 a barrel.
“The worst-case scenario would be we go back to active military conflict that would especially see the Iranians target the energy infrastructure in that region, and also see the Houthis try to close the Bab el-Mandeb Strait between the Red Sea and the Gulf of Aden,” Miller said.
At those price levels, he warns the economic consequences would be severe — triggering what he calls “rampant demand destruction,” meaning fewer airline flights, reduced petrochemical activity and a slowdown in broader economic output.
“That would assuredly lead to a worldwide recession that would likely pull the United States into that recession as well,” Miller said.
An ‘air pocket’ in global supply
The Strait of Hormuz has been effectively closed for more than 50 days.
Miller describes the current moment as an “air pocket” — a gap in global shipments that is now beginning to hit Western Europe and the United States after weeks of hammering Asia.
The effects are already showing up in manufacturing. Petrochemical production has declined in South Korea and Japan, raising concerns about plastics and industrial parts. Japanese producers have begun drawing down aluminum use, partly because significant quantities of aluminum come from the Middle East.
Miller warned that the global supply situation is nearing a critical threshold.
“We’re very close to essentially what we’ve kind of viewed as the point of no return for the overall economic damage that this crisis will cause, because as we start approaching 60 days of Hormuz closed — and certainly as we would get closer to 75 days — we’re just in a very rough situation,” Miller said.
Why the U.S. can’t simply fill the gap
There has been growing excitement about more tankers heading to U.S. ports to load crude oil. But Miller cautions that American export capacity is nowhere near sufficient to offset the global loss.
The U.S. exports roughly 5 million barrels a day under normal circumstances. Even with the recent surge in loading activity, the country can only process about 2.5 tankers per day in terms of loading capacity. If 80 to 100 vessels arrive to load, it could take two months to work through that backlog. Meanwhile, the world is short 13 to 15 million barrels a day.
“We are in no way a substitute for Hormuz,” Miller said.
How consumers can cope
Unlike countries such as Australia, Bangladesh and India — where fuel shortages are causing gas stations to run out of supply — the U.S. remains relatively insulated, thanks largely to its own oil production and close energy ties with Canada. Still, Americans are feeling the pinch at the pump, and prices for aluminum, fertilizers and freight have also climbed.
Miller’s advice for everyday drivers is practical: be strategic.
“Combine multiple trips into one so you’re not having to burn more than what you need,” Miller said. He also suggested driving at 70 mph rather than 85 or 90, noting that fuel consumption rises sharply at higher speeds. As for rushing out to buy an electric vehicle, Miller says the math doesn’t quite work yet — unless someone was already planning to make the switch.
“The challenge with gasoline is it’s very hard. It’s one of those things where our consumption is relatively inelastic relative to price,” Miller said. “You still have to take your kids to school. You still have to go to work.”