US-Iran Deal Reopens Strait of Hormuz

The U.S. and Iran have reached an interim agreement to end their war, which includes reopening the Strait of Hormuz and lifting the U.S. naval blockade on Iran. This deal potentially brings an end to the largest oil supply disruption in history, with the war estimated to have blocked more than 14 million barrels per day (bpd) of Middle East oil output according to Reuters.

The International Energy Agency (IEA) forecasts a significant oil supply surplus in 2027 after recovering from the closure of the Strait of Hormuz. The IEA reports that if the deal holds, exports and production from the Gulf should see a gradual recovery. 'If the deal holds, exports and production from the Gulf should see a gradual recovery – not least because Iranian oil exports can fully resume once the U.S. blockade is lifted,' the agency said according to Reuters.

The IEA predicts that the oil market will fall into a significant supply overhang next year, with oil supply set to surge by 8 million bpd while demand rises by just 2 million bpd. This forecast implies that supply will outweigh demand by 5.05 million bpd in 2027, as demand growth is overshadowed by supply ramping up as Middle East barrels return according to CNBC.

President Trump announced that merchant ships can once again sail unimpeded through the Strait of Hormuz starting Friday. However, there are still questions about how quickly commercial ships can start moving and whether Iran will allow free access in the international waterway according to NPR. Around 1,500 ships remain stranded inside the Persian Gulf, awaiting clearance to leave.

Global oil prices dropped about 4% to around $83 per barrel on Monday due to optimism surrounding a potential US-Iran peace deal reported by The Guardian. Stock markets on Wall Street rallied, with the Dow rising by about 1% and hitting a record high as investors welcomed news of a preliminary agreement between Washington and Tehran.

The International Monetary Fund (IMF) chief Kristalina Georgieva stated that the world economy is weathering the shock of the war in the Middle East with no signs yet of a global slowdown. She welcomed the agreement by the U.S. and Iran to end their war and reopen the Strait of Hormuz but warned that an intensification of the conflict and supply disruptions posed a clear risk to global growth according to Reuters.

The IMF will release an updated global growth forecast on July 8, with its middle 'adverse scenario' calling for a slowdown to 2.5% in 2026 and headline inflation of 5.4%. Georgieva suggested the IMF may revert to its reference scenario, which assumed a short-lived Iran war and projected growth of 3.1% in 2026.