Three Recovery Scenarios for Hormuz: The Ceasefire Agreement Is Unstable, But the Market Has Chosen the Most Optimistic Path?

The US and Iran announced a two-week ceasefire, and the market immediately bet that the Strait of Hormuz would quickly resume passage. But the data gave a completely different signal—on the day of the ceasefire (April 7) only 7 energy-related vessels crossed the strait, accounting for 15% of pre-war energy shipments; by April 8-9, the number of crossings had fallen to nearly zero. The ceasefire agreement was reached, but the strait was actually more congested than the day before.

According to "Zhifeng Trading Desk", Parsley Ong, Head of Asia Energy & Chemicals Research at JPMorgan, pointed out in the latest report that the current oil forward curve basically reflects the "aggressive reopening" scenario, namely Hormuz energy flows recovering to 50% of pre-war levels in May and 100% in June. However, if 100% recovery is delayed until July, there is an upside risk of $15-20 per barrel for oil prices relative to the existing forward curve. In other words, the market is pricing in the smoothest scenario, and the margin for error is very small.

The scale of cargo trapped on the western side of the strait has become quite considerable. As of April 9, a total of 346 energy vessels were stranded, 241 of which were fully loaded, carrying a total of 104 million barrels of crude oil and condensate, 5.5 million barrels of LPG, and 1.3 million tons of LNG. The smooth export of these goods would contribute much more to global inventory replenishment than releasing onshore inventories. Meanwhile, upstream production across the Middle East has cumulatively shut in 11.3 million barrels/day, mostly not due to facility destruction but exports being blocked, causing tanks to fill and forcing wells to close.

Energy shipments across the strait near zero, physical bottlenecks restrict recovery speed

Before the conflict, 120 to 140 vessels of various types crossed Hormuz daily, about 45 of them related to energy. After the ceasefire, physical constraints are harder to overcome than geopolitical factors. The only available corridor is currently the Larak-Qeshm region, limited by channel width, theoretically allowing a maximum of 12-15 ships per day.

Priority ranking is also a variable up in the air: departure or arrival first, energy ships or container/bulk carriers first, among departing energy ships how many are crude versus LPG—none of these have clear answers. Of the 12 ships that passed on April 7, 7 were energy ships, 5 outbound and 2 inbound, only 9% of pre-war daily average traffic.

LNG is in an especially poor situation. The only LNG ship to cross since the ceasefire is an empty vessel, currently anchored near Oman LNG. Two loaded Qatari LNG ships (Al Daayen and Tasheeda) headed towards the strait entrance on April 6 but turned back later. There are 16 LNG ships inside the strait now, 13 fully loaded, carrying about 1.3 million tons of LNG, 50% originally destined for South Korea, 12% for India, 16% for Pakistan.

The market prices in "full resumption in June", a one-month delay is a $15-20 mistake

JPMorgan designed three scenarios to estimate the effects of different recovery speeds on global oil inventories and prices.

"Aggressive reopening": recovery to 50% of pre-war volumes in May, 100% in June. This is basically what the current forward curve reflects.

"Intermediate" scenario: 50% only in June, 100% in July—this is only one month later than the aggressive scenario, but the corresponding upside risk for oil prices is $15-20 per barrel.

"Slow" scenario: April flows fall further to 5% of pre-war, recover to 50% in July, and reach 100% in August. On this track, global oil inventories will bottom out at 6.9 billion barrels in August, and still be 12% lower than pre-war in two years. However, shocks of this magnitude are likely to trigger a large increase in US shale production and demand destruction—if supply growth exceeds demand growth by 3 million barrels/day starting April 2027, global inventories may return to pre-war levels by the end of 2028. The core difference in these scenarios is not "will there be a recovery", but "how fast", and currently there is no answer.

Subsidies are burning, controls are tightening, and fiscal buffers in Asia are getting thinner

The energy price shock is quickly eroding the fiscal space of governments.

Japan’s average monthly subsidy for gasoline and diesel price caps is 500 billion yen, and the treasury had only 1 trillion yen left as of the end of March. Malaysia’s monthly fuel subsidy rose from 700 million ringgit pre-war to 4 billion ringgit. Indonesia’s 2026 energy subsidy budget is 381 trillion rupiah, and authorities estimate another 100 trillion is needed.

Coping strategies are broadly similar: export bans to protect domestic supply, price caps to control inflation, utility controls to cut demand. South Korea extended gasoline (1,934 won/liter) and diesel (1,923 won/liter) price ceilings to April 23; India prioritized LPG allocation for hospitals, food processing, and agriculture, other sectors get limited supply; Bangladesh forced retailers to close at 7pm, office hours compressed to 9am-4pm; Indonesia set a 50-liter/day fuel ration for private cars starting April 1. The common logic is to pass shortage pressure downward, rather than solve the supply problem itself.

11.3 million barrels/day shut in, restarting is not as easy as opening a valve

Of the Middle East upstream production losses, Iraq contributes 3.4 million barrels/day (9 oilfields in the south), Kuwait 1.4 million barrels/day, UAE 2.2 million barrels/day, Saudi Arabia 2 million barrels/day, Qatar 500,000 barrels/day. Most shut-ins are due to tanks filling up and blocked exports, not direct facility destruction, theoretically allowing a quick restart.

But cases where infrastructure was damaged will take longer. UAE’s Fujairah port was hit by drones on March 14 and 16, crude tanks caught fire, some loading operations suspended; Qatar’s Pearl GTL plant was hit by missiles, one of two units (300,000 barrels/day each) seriously damaged, repairs expected to be complex; Iran's South Pars condensate facility was attacked, daily production down 170,000 barrels. This means even if the Hormuz corridor is fully opened, part of the production capacity will take time to recover and won’t bounce back automatically with the ceasefire.

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The above content is from Zhifeng Trading Desk.

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