Crude-oil futures plunged Friday morning, contributing some modest pressure to grain and soy complex futures, after Iran’s foreign minister said the Strait of Hormuz was open to commercial traffic along a “coordinated route” after an Israel-Lebanon ceasefire appeared to hold.
Oil analysts and maritime experts said key questions remain about the implications for traffic through the crucial waterway, which accounts for around a fifth of global crude and natural gas flows and around a third of fertilizer flows.
In a post on X, Iranian Foreign Minister Abbas Araghchi said “the passage for all commercial vessels through Strait of Hormuz is declared completely open for the remaining period of ceasefire, on the coordinated route as already announced by Ports and Maritime Organisation of the Islamic Rep. of Iran.”
Oil traders appeared to sell first and ask questions later when it comes to crude, while stocks soared, building on recent gains. But Araghchi’s reference to the “coordinated route” drew scrutiny from analysts, as it indicates ships would need to move through Iranian waters in coordination with Iranian military forces. The post also said nothing about whether ships would be required to pay tolls.
President Donald Trump, in a social media post, said the U.S. blockade of Iranian ports would remain in “full force” until a full peace deal is negotiated. He also said Iran was working to remove mines from the strait.
June West Texas Intermediate crude was down $10.70, or 11.7%, at $80.47 a barrel on the New York Mercantile Exchange, while July Brent crude, the global benchmark, shed $8.71, or 9.3%, to trade at $84.86 a barrel on ICE Futures Europe. The stock market soared, building on recent gains that took the S&P 500 and Nasdaq Composite to all-time highs. The Dow Jones Industrial Average was up nearly 1,000 points, or 2%, in morning trade.
Grain and soy complex futures were dragged lower, with crude-sensitive soybean oil futures dropping 140 points, or 2%, to 67.65 cents in the July contract. July soybean futures were modestly lower, down 2 cents at $11.61 ¾, while July corn declined 2 cents to $4.55 ¾. July SRW wheat dropped 12 ¼ cents, while July HRW wheat declined 9 ¼ cents.
Grain futures rallied in March, taking a cue from crude’s surge above $100 a barrel. Corn and soybeans subsequently gave back their war premium this month, while soybean oil has remained elevated; wheat futures have been lifted in part by poor crop conditions in the Plains and weather concerns, while expectations for reduced production in Australia and elsewhere as a result of pinched fertilizer supplies have also been a factor.
Assuming traffic is or will soon resume, flows for crude oil and fertilizer are expected to take a long time to adjust.
“Tankers are out of position, supply chains dislocated, and getting ships back into the right loading and discharge locations may prove a logistical bottleneck in the weeks ahead,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note. “Even with the Strait declared open, effective normalization will take time.”
That means tightness is likely to persist, particularly when it comes to refined products as assessments of the damage done to refineries and infrastructure are just beginning to emerge, he said. Upstream, production can’t resume at scale until storage tanks have been sufficiently drawn down, allowing shut-in wells to reopen – a process that’s likely to take weeks.
“In the last seven weeks, the world has lost more than 500 million barrels of production, leaving the global market a great deal tighter than before, potentially justifying a new floor for oil some $10-$15 above where it was prior to the war,” Hansen said.
As for fertilizer, experts have warned that flows will also take time to be restored. North Dakota State University economists earlier this week said that even under a best-case scenario in with the strait sees a “quick reopening,” pre-pay urea and other fertilizer prices would be significantly elevated from pre-war levels this fall. They saw little prospect for prices to return to prewar levels before 2028.
See: Fertilizer prices have further to rise, even in a best-case scenario