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Akbar Novruz

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For five weeks, the world's oil markets have been operating on borrowed time. Commercial reserves have been drawn down, tanker traffic has been rerouted around the Cape of Good Hope, and major importing nations have released emergency stockpiles at a pace that cannot be sustained. What traders and energy ministers alike have asked themselves, how much time until the physical crunch hits, has finally been given a definitive deadline: Tuesday at 8 pm Eastern time, when President Donald Trump’s deadline to Iran expires.

As far as the diplomatic situation goes, at least as of early Tuesday morning, it has involved deliberate distance on both sides. The Chief of Army Staff of Pakistan, Field Marshal Asim Munir, has been communicating with the US vice president, JD Vance, special envoy Steve Witkoff, and the Iranian foreign minister, Abbas Araghchi, as per the sources quoted by Reuters. A two-step plan was offered to both sides, which includes 45 days of cease-fire after which peace talks leading to a permanent solution would begin, provisionally called the "Islamabad Accord". While the reply that Trump got from Iran was termed as "significant" by him, he stated that it was "not good enough".

Energy overview ahead of deadline

Brent Crude Price per Barrel: $108–$109 (Tuesday morning); Analysts describe the current market as the "calm before the storm."

Daily oil deficit is 8 million barrels per day; Though this deficit cannot be physically compensated by reserves, logistical maneuvers from Saudi Arabia and the UAE, or releases from the International Energy Agency (IEA).

Export risk is over 80%; If Iran were to close the Strait of Hormuz and Bab al-Mandab simultaneously, more than 80% of regional oil and gas exports would be at risk.

A Brent oil price of $108 to $109 per barrel certainly qualifies as a high price range. However, experts claim that it still does not account for the risks that are prevailing at this moment. As one energy strategist put it, "This could be considered more like the eye of the storm." Azeri Light crude from Azerbaijan, a top-grade product of the Caspian that moves through Europe without passing through the Strait of Hormuz through the Baku-Tbilisi-Ceyhan pipeline, reached $142 but later fell back to about $122 to $123, according to experts who say the drop was due to technical reasons.

The rationale behind restraint in markets stems from the fact that about 60 percent of the disrupted volume was initially mitigated due to three factors: withdrawals from strategic reserves, logistics mitigation by Saudi Arabia and the UAE through the Red Sea and pipeline transport, and coordinated actions from the IEA to release crude. Each of these methods has its limits. According to analysts, US and Japanese strategic reserves will be exhausted in case of an extended military conflict lasting several months.

The larger Gulf exporters have done more than wait. Riyadh has turned its output towards the East-West Pipeline into the Red Sea, from there continuing via the Bab el-Mandeb strait. However, the capacity of that pipeline is 7 million barrels per day, and Riyadh has found itself having to cut daily exports by close to 2 million barrels because of this restriction. Similar, though smaller, cuts have also had to be made by the UAE. In contrast, Iraq has been quicker off the mark: the Kirkuk-Ceyhan pipeline from the country to the Mediterranean shore of Türkiye has been revived, while the Basra Oil Company is shipping about 90,000 barrels of Iraqi oil per day northwards from its southern fields to Kirkuk, giving Iraq-to-Ceyhan flows totaling about 340,000 barrels per day out of a pipeline capacity of 1.6 million. Significantly, Iran has declared the Strait open for Iraqi oil on 5 April, enabling Baghdad to encourage buyers to resume purchases. An Iraqi tanker filled with Iraqi oil has sailed through Hormuz, according to the Wall Street Journal on Sunday.

On Sunday, OPEC+ decided to boost output by 206,000 bpd in May. However, according to analysts, the number was mostly symbolic since it is impossible for big producers to boost output when the strait is closed. The destruction of the Ras Laffan port in Qatar, which has reduced the capacity of LNG production by 17% with no prospects of restoring the facility within the next five years, is evidence that not all economic effects are temporary.

According to an adviser to President Ali Akbar Velayati, Iran perceives the Bab al-Mandab Straits, through which Saudi and UAE crude passes to reach its market in Asia and Europe, as "an area of equal importance [to Hormuz]." The simultaneous closing of the two vital chokepoints could cause a further loss of 9 million barrels of oil per day, besides the loss of the Hormuz chokepoint, which pushes the price per barrel to exceed $150, according to analysis. Such a situation means that the deficit in barrels per day, amounting to 8 million, cannot be sustained by existing oil reserves anymore. In that case, manufacturing plants in Germany and South Korea will stop their activities. As far as African, South American, and South Asian nations are concerned, the problem will be much worse because of prevailing high oil prices.

Even in the absence of such an extreme scenario, there remains a market that will take some time before it is normalized. According to energy experts, there would be at least a delay period of six to eight weeks after any ceasefire for the oil supply to resume at its pre-war levels due to insurance adjustments, VLCC loading process, and the reassurance regarding the use of the Hormuz route. The infrastructure destruction, which in some cases might take years to rebuild, means that there will always be a geopolitical risk premium in oil prices, irrespective of the results of diplomacy. The Wall Street Journal estimated that Saudi Arabia’s loss resulting from the confrontation between Iran and the US has crossed $10 billion, a number that has directly led to Saudi Aramco hiking the Arab Light oil price by $19.50 to Asian buyers in May, which the UAE and Iraq are expected to match.

Two possible scenarios over the 48 or 72-hour period:

Partial agreement scenario: Partial agreement achieved on Monday. The 45-day ceasefire period starts. Prices drop due to the agreement but stabilise at $80-90 per barrel owing to infrastructure and insurance delays. Azeri Light drops from its premium level but is still at a high price point. The market starts a normalization period that will last for weeks.

No agreement scenario: President Donald Trump gives permission for an air strike on Iran's power plants and bridges. Iran closes Bab al-Mandab through Houthi rebels. Supply cut exceeds 17 million barrels per day. Brent hits more than $150 per barrel. The International Energy Agency starts its emergency release plan. Fertiliser production stops. Output reductions occur in industries in Germany, South Korea, and Japan.

The 45-day period of ceasefire would provide more time for further discussions and negotiations, which, according to Axios sources, would include a definitive agreement between both sides regarding the reopening of Hormuz and the reduction of Iran’s stock of enriched uranium. It must be noted that mediators have admitted that neither one nor two of these issues can be resolved without a definitive agreement. The market is currently holding its breath until Tuesday, at 8 pm Eastern Standard Time. The difference is still huge.

US-Iran tantrum over Hormuz: possible talks, but with mistrust

Prospects for any US–Iran understanding over the Strait of Hormuz remain constrained by structural mistrust, but not entirely implausible.

Tehran’s baseline position is firm. Since the collapse of the Joint Comprehensive Plan of Action under Donald Trump back in May 2018, Iran has treated US overtures with deep scepticism. Its leadership views control over regional networks and leverage around Hormuz as core deterrence tools, not bargaining chips to be easily traded.

That said, Iran is also operating under sustained economic pressure from sanctions. Oil exports, its principal lifeline, remain vulnerable to enforcement cycles and market volatility. This creates a narrow incentive for tactical flexibility. Tehran may consider limited, informal understandings that reduce immediate risks around maritime security or de-escalate tensions affecting energy flows, particularly if such steps do not require formal concessions on its regional posture.

However, any “oil-for-stability” arrangement faces political limits on both sides. In Washington, rhetoric about “taking the oil” undermines trust and reinforces Iranian fears of coercion rather than partnership. In Tehran, appearing to yield under pressure, especially on an issue tied to sovereignty, would carry domestic and ideological costs.

The most plausible outcome is not a grand bargain but incremental, opaque arrangements: tacit deconfliction in the Gulf, selective sanction leniency, or quiet coordination to avoid disruption in global energy markets. Iran is unlikely to become “soft”, but it may act pragmatically at the margins.

That means Tehran will likely remain strategically stiff, however tactically adaptable, especially seeking relief without relinquishing leverage.