Better Flows Were Clearing a Backlog, Not a Recovery

The deal that was supposed to fix the flow problem has stalled. The flow problem hasn’t. And reserves continuing falling.

The ceasefire holds, but the underlying deal has stalled on the points that determine whether reopening is sustainable.

Iran is entrenching control over the strait through mechanisms – mines, fees – that outlast any ceasefire.

Iran’s institutions can’t agree among themselves, so even a signed deal still may not compel the IRGC, hence the physical reopening the market is pricing isn’t coming on the MOU’s own timetable.

Meanwhile the price is being held down by three cushions – released barrels that had been trapped in the Gulf, SPR drawdowns, and Chinese reserves and reduced imports – that are all finite, so the mispricing identified in Two Spikes Coming hasn’t resolved.

New evidence this week – inbound tanker numbers, floating storage, operator testimony – confirms the physical picture rather than the price picture.

The argument in Two Spikes Coming rests on a race, between stockpile depletion and production restoration, with Cushing already near its operational floor and reserves elsewhere running out within one to two months. The past week has not changed that race, but it continues to indicate the reserve draws are still outpacing the return of flow.

The MOU signed on 17 June was supposed to settle the reopening. Instead it has settled into a pattern of brief traffic windows followed by a strike, a US response, and a return to the negotiating table to manage the aftermath. The Ever Lovely was hit on 25 June inside the safe corridor the International Maritime Organisation (IMO) and Oman had set up along the Omani coast days earlier. The US struck Iranian missile, drone, and radar sites the next day. A projectile then hit the tanker Kiku and Iran fired at US positions in Bahrain and Kuwait. The US next expanded its target list to surveillance, communications, and minelaying infrastructure. Both sides then turned up in Doha this week and kept communicating, which suggests the ceasefire itself is intact, but does not indicate the deal underpinning it is progressing.

The two sides are not talking directly to each other in Doha. American and Iranian delegations are meeting Qatari and Pakistani mediators separately, a step back from the direct sessions held in Switzerland two weeks earlier. Iran’s stated priority is Clause 11, the release of frozen assets, and President Pezeshkian has stated that $6 billion of the $12 billion held in Qatar will be returned, though it is not yet clear on what terms or even whether the funds have moved. Iran will not discuss its nuclear programme until those funds move, but if that money moves without a matching concession on enrichment it will reduce the leverage the US has left for that discussion. Trump has claimed a deal was close at least 38 times between late March and early June, according to a CNN count. Doha is yet one more round in that pattern.

The strait’s governance is where the deal has stalled most. Iran’s foreign minister Araghchi has said the removal of “obstacles” in the strait, and its reopening, rests with Iran alone. The IMO’s Secretary-General has said Iran laid an estimated eighty mines across the main shipping channel. The timetable for clearing them is set by Tehran regardless of what Doha produces. The Joint Maritime Information Centre raised the strait’s security threat level to “substantial” this week, citing mine risk and clearance uncertainty. Oman has separately delivered a service-fee proposal to Washington and its allies. An Iranian official has called the fees mandatory, but a regional diplomat has called them voluntary. Either way, Iran can prioritise the shippers who comply and delay the ones who do not, so the dispute over wording matters less than the authority it establishes.

Inside Iran, more than sixty of the Assembly of Experts’ roughly 88 members signed a statement on 28 June warning negotiators against crossing Khamenei’s red lines, control of the strait among them. The Assembly’s own secretariat publicly distanced itself from the statement within hours, which means even the body meant to speak for Iran’s clerical establishment cannot agree on how hard a line to take. Pezeshkian spent the same week in Qom telling senior clerics the opposite, that the MOU was an economic win worth defending. And while the president was making that case, the IRGC struck a vessel inside a corridor the foreign ministry had just endorsed. Three arms of the same state, pulling three different directions, in the same seven days. No single part of the Iranian state can bind the others to one position, hence why incidents the negotiators did not authorise keep recurring.

WTI is trading around $70, close to its level before the war began, and Morgan Stanley has cut its Brent forecast on the basis that Hormuz is reopening faster than expected, projecting a 2027 surplus of 4.8 million barrels a day. “Strip away the narrative,” the bank’s analysts wrote, “and read only the prices. They describe a market that has weakened across the board.” Morgan Stanley may be right about a near-term glut – outbound cargo has genuinely surged since the MOU – but the mistake is extrapolating that burst into durable recovery. The analysts are getting the direction backwards because a weak price does not necessarily prove a weak market. Rather, in this case it means a market distorted by reserve draws and supply disruption, and both of those aspects are temporary props under the market, not foundational features. That makes Morgan Stanley’s case much harder to sustain.

Roughly 170 million barrels of crude that had been trapped in the Gulf cleared the market once the MOU allowed it out. The SPR is drawing at a pace that leaves perhaps three to six weeks of room. Chinese crude imports have fallen by something like 5 mb/d since March, while China’s visible commercial stocks have barely moved, which means the shortfall is being met from reserves that do not appear in any published series. Cushing itself fell to 18.96 million barrels in the week to 19 June, the lowest since October 2014 and near the roughly 20 million barrels traders treat as an operational floor. A partial reopening of the strait does not fix that on its own.

There is limited evidence of a return toward normalised transit through Hormuz that would fix this. Tankers leaving the Gulf are just running down a backlog that had built up over four months, while empty tankers still aren’t returning to the Gulf in sufficient quantities to restore normal export flows.

NYK Line’s chief executive said this week that the strait remains nowhere near prewar conditions. Iranian crude is meanwhile building up in floating storage off Singapore, which looks less like a bet on higher prices and more like preparation for the strait’s next closure.

The race described in Two Spikes Coming has not been decided – it is still awash with uncertainty and chaos. But the reserves are still drawing down, and the flow that would slow that draw still has not been restored.