A peace deal has been reached between america and Iran, but getting oil to flow through the region again and helping gas prices return to pre-war levels could also be more of a challenge.
That’s since the physical and economic damage done means consumers might want to get used to a “latest normal,” in response to no less than one expert, where gas prices stay elevated for the foreseeable future.
“It’s optimistic that we’d even have an end to this conflict, and we’d get some oil flowing through,” says professor of international business David Detomasi on the Smith School of Business at Queen’s University.
“We got comfortable with the proven fact that shocks were rare and that we could take care of them after they occur. Now they occur on a regular basis — that is the brand new normal.”
The conflict has not only scarred the region, but has left a large bottleneck within the Persian Gulf region, and it should take a while before oil and energy markets can catch up after several months of choked-off supply chains for oil, natural gas, fertilizer and other products.
“We’re not going back to $1.30, $1.35 [per litre of regular gasoline] on average in Canada, just because the necessity to make up all of those shortages are going to take a really very long time,” says gas price analyst Dan McTeague of Canadians for Reasonably priced Energy.
Here’s what to know.
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U.S. President Donald Trump announced Sunday on his social media platform, Truth Social, that a peace agreement with Iran had been reached. That was also confirmed by Pakistan’s prime minister.
Trump, in his social media post, has also said energy prices will “drop like a rock” once the Strait of Hormuz reopens.
Prior to Sunday’s announcement, Trump had claimed multiple times that a ceasefire agreement was imminent, only to see fighting resume.
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So what makes this time different?
Detomasi says it’s due to “deliberate inclusion” of other parties, as opposed to simply Trump claiming a deal had been reached. This includes Pakistan confirming the announcement, which has been acting as an intermediary between Iran and the U.S. during negotiations.
Having either side agree is a key signal of optimism that this deal could stick, but for oil and energy markets to actually see relief, the Strait of Hormuz must be fully reopened to shipping traffic again.
“The primary thing that we are going to must see is actual movement of ships through the strait,” says economist Marc Ercolao at TD Economics.
“That’s what’s been holding back global oil supply. That’s materially tightened energy markets during the last little bit, and there appears to be, no less than on the Iranian side, some go-ahead that this may occur.”
Although reopening the strait will little question get oil flowing again through the Persian Gulf region, it is probably not so simple as opening a faucet.
“Even in case you open up the strait, that doesn’t necessarily mean that the oil can flow freely if it’s bottlenecked by not with the ability to reach the port in the primary place. There have been some facilities on the opposite side of the Strait of Hormuz that were also damaged,” says economics professor Moshe Lander of Concordia University.
“There’s going to must be some agreement here that not only you’re opening up Strait of Hormuz, but that you simply’re also going to permit parts and materials in to give you the chance to get this rebuilt. That would take itself one other couple of months as well.”
The peace agreement is scheduled to be signed in Switzerland on Friday.
Nonetheless, if the Strait of Hormuz were to totally reopen to shipping traffic once the agreement is signed, how long will it take for prices at gas pumps to fall to levels seen before the Iran war began in February?
“The pump prices, gas prices, they typically adjust inside days to weeks because retail prices are a mirrored image of what’s happening within the wholesale markets. So on the margin, we must always expect some relief in the following couple of weeks, needless to say,” says Ercolao.
“Nonetheless, your entire normalization technique of energy markets goes to take months. It’s going to be uneven. It’s going to be slow. We is not going to see drastic price decreases.”
Where gas prices are heading
Crude oil price movements are considered one of the fundamental aspects determining what consumers pay at gas pumps — including in Canada.
If there’s less oil available globally to satisfy expected demand for things like gasoline and jet fuel, then prices typically will rise. They may also fall if demand for those products falls or if there’s an oversupply of oil, or each.
Expectations of a ceasefire and the strait reopening suggests a considerable increase in global oil supplies is on the best way, which should translate to some relief as gas pumps this week.
As of publication, U.S. oil (West Texas Intermediate) was priced at about US$80 a barrel. That’s down from a recent peak in the course of the conflict of about $113 in May, and still above about $65 in the times before the war began.
The national average for normal gasoline in Canada currently sits at just under $1.66 a litre, in response to CAA. That’s down from about $1.90 a month ago, and $1.35 one 12 months ago, while some consumers were paying well over $2 a litre at local gas stations.
McTeague says Canadians can expect gas prices to drop roughly 10-15 cents per litre over the approaching days and weeks, meaning they might not get much lower than $1.50 for the national average anytime soon.
“Crude vessels run on the speed of a small bike. And so for a rustic to take delivery, possibly two or three months, not to say the damage, physical damage that’s been done to lots of the oil fields within the Persian Gulf, in addition to a few of those older oil fields which have also been disrupted,” says McTeague.
“It’s going to take an extended time for things to get back to normal — meaning higher prices for longer.”
How long until gas prices return to pre-war levels?
If a peace take care of Iran becomes a everlasting and long-term agreement, it could take months, and even into next 12 months before prices return to levels seen before the conflict began — if in any respect.
Lander says it could take three to 4 months before oil prices return to the $60 a barrel range, and that’s provided that the deal holds and all facilities are repaired and shipments return to the degrees seen before the war began.
Others think it should take even longer.
“A minimum of six months, no less than, but simply because that [oil] is flowing doesn’t necessarily mean gas will return to the identical level because there’ll be something else.”
This implies it may very well be by the tip of the 12 months before prices return near pre-war levels again, but there may very well be other shocks to grease markets like geopolitical issues that may delay the technique of normalization.
“The deal could have to carry indefinitely for the following one to 2 years. The normalization process for energy markets goes to take a while,” says Ercolao.
“We won’t even get back to pre-war levels but we will certainly get back to manageable energy levels into 2027.”