US and Iran agree 60-day ceasefire, Strait of Hormuz to reopen — but damage is done

The oil can start flowing through the Strait of Hormuz again. The US and Iran have agreed to a 60-day ceasefire, ending — at least for now — a conflict that shut the world's most important oil chokepoint since February 28.

Under the deal, the strait will gradually reopen without tolls. Iran will start clearing the mines it laid in the passage. In return, the US will lift its naval blockade of Iranian ports and drop the sanctions on Iranian oil sales.

But don't expect things to snap back to normal. The strait used to handle 20 per cent of the world's oil. That flow stopped cold when the US attacked Iran on February 28. Now, even with a deal, the damage to global energy markets is deep and lasting.

It could take three months just to remove all the mines and clear the tankers trapped in the strait. Repairing damaged oil infrastructure — wells shut in, refineries hit — will take even longer. Qatar's Ras Laffan LNG complex, struck by Iranian drones and missiles, could take years to get back to full capacity.

During the 60-day window, the two sides will try to negotiate the future of Iran's enriched uranium stockpile. The US is offering more sanctions relief and the unfreezing of tens of billions of dollars in Iranian assets held offshore as a carrot.

But there are big sticking points. Iran wants $US24 billion ($33.9 billion) of its frozen assets released immediately. It insists it has the right to charge tolls for safe passage through the strait. And it won't give up the right to enrich uranium for civilian use. So a permanent deal is a big 'if'.

The war has already changed the world. The worst oil shock in history has forced countries to adapt — and some of those changes are permanent.

Sales of electric vehicles have surged as petrol prices skyrocketed. Mothballed coal plants have been fired back up. More nuclear plants are on the drawing board. The International Energy Agency now forecasts oil demand will drop by 420,000 barrels a day this year.

Countries that relied entirely on Middle Eastern oil — especially in Asia — have scrambled to find supply from elsewhere. That diversification isn't going away.

Insurance rates and shipping costs for Persian Gulf oil have soared and will stay high. If Iran does impose tolls after the ceasefire ends, that adds another layer of cost.

There's already talk of building more pipelines to bypass the strait entirely. The Middle East producers whose oil was trapped have learned a harsh lesson about their vulnerability.

The closure took more than 1.3 billion barrels of oil out of circulation. That loss was partly offset by an unprecedented release of 400 million barrels from strategic reserves, a drawdown of commercial stocks, and a big increase in US exports. But those inventories were running thin.

One of the most painful knock-on effects: fertiliser prices. The strait handled about a third of the world's seaborne fertiliser trade. With that supply cut off, fertiliser prices skyrocketed, hitting global food production. It'll take months to restore those shipments.

Oil prices fell sharply on news of the deal. But whether they'll drop back to the sub-$US70 a barrel they were at before the war is unclear — and probably unlikely.

The Iranians have now shown they can close the strait at will. The old assumption that it would always stay open is gone. The post-war normal around the strait will never be the pre-war normal.

"The oil price fell sharply after it became clear that there was an actual deal in place."

For the rest of the world, the lesson is stark: a single chokepoint can bring the global economy to its knees. The war may be paused, but its consequences will be felt for years.