Citi/Crude oil remains under pressure

The US-Iran dealmaking process remains fragile but continues for now, as the question of Strait of Hormuz tolls and administration remains contentious. Still, we expect the MOU to hold, not because trust has suddenly emerged, but because the incentives to break are poor for both sides (through this MoU and ultimately through a deal Iran gets largely what it asked for, and the US gets acceptable global oil prices). After the weekend’s escalations, with Iran hitting two ships in the Strait of Hormuz, the US responding with airstrikes on Iranian military facilities, and Iran attacking US bases in Bahrain and Kuwait , both sides de-escalated, with negotiations moving to Qatar. These first 30 days were expected to be noisy as shipping routes normalize, insurance markets adjust, and residual logistical bottlenecks work their way through the system. Indeed, visible traffic through the Strait of Hormuz has already increased materially, with AIS-based data showing crude oil flows now heading toward rates of nearly 7-m b/d of loadings and refined product flows at over 1-m b/d of loadings vs. pre-conflict norms of 15-m b/d of crude oil flows and 5-m b/d of refined product flows. However, for security reasons, a large share of vessels transiting the Strait of Hormuz continues to operate with transponders disabled or intermittently suspended, meaning actual traffic levels are likely higher than publicly observable data suggests, with vessels generally transiting in convoy formations along two distinct corridors: one managed by the US and hugging the Omani coastline, and another transiting through Iranian territorial waters. The return of organized navigation patterns and rising traffic volumes suggests commercial operators increasingly view the risk environment as manageable rather than prohibitive.

The broader political backdrop points toward stabilization and a deal rather than renewed confrontation. The US and Iran both appear to be displaying genuine conflict fatigue, while the one meaningful source of potential disruption, that is Lebanon, is increasingly constrained by a broader US preference for de-escalation. Israel and Lebanon signed a US-brokered framework agreement late June, notably without Hezbollah, that links Israeli forces withdrawals to Hezbollah disarmament, with Israel initially pulling out of two small pilot zones and the Lebanese army gradually assuming security responsibilities. Hezbollah has warned this could trigger civil conflict, but the broader regional trajectory looks to remain one of stabilization rather than escalation.