With Hormuz reopened, has the oil shortage turned into a glut?

Al Jazeera | July 2, 2026

Summary

The Strait of Hormuz is reopening faster than expected after the US-Iran MoU. Oil prices have fallen back to pre-war levels. But Morgan Stanley warns of a potential oil glut as Chinese demand remains depressed and Iranian exports resume.

Key Points

Fast Recovery, But Fragile

  • 35 oil and gas tankers exited the Strait on Thursday — first time returning to within range of pre-war levels
  • Brent fell $0.79 to $70.78; WTI fell $0.84 to $67.74
  • The recovery is fragile: at least 49 attacks on commercial vessels have been recorded since the war began

China Has Not Returned to Gulf Oil

  • China — the world's largest oil importer — has slashed imports and tapped stockpiles
  • Now importing from Russia, Kazakhstan, Brazil, Indonesia, Venezuela instead of Middle East
  • This served as an equalizer during the conflict; as Hormuz reopens, China's demand remains depressed while producers increase output

Morgan Stanley Glut Warning

  • Cut oil forecasts for the second time in two weeks, warning of glut risk
  • Kevin Morrison (IEEFA): forecast is contingent on Chinese imports remaining low and full Hormuz resumption
  • Full 20M b/d pre-conflict level is "unlikely to be reached until sometime next year" given production infrastructure damage

Iranian Oil — Where Is It Going?

  • Bloomberg: >20 million barrels of Iranian crude ready to sail for at least seven days, up 18% from a week earlier
  • 58–68 million barrels of Iranian oil loaded onto ships (Vortexa/Bloomberg)
  • >90% of Iranian cargoes have no clear destination — independent Chinese refiners making deals elsewhere

New Transit Regime

  • MoU: ships transit toll-free for 60 days; Iran insists on controlling administration
  • After 60 days (~August 17): Iran and Oman will charge fees for maritime services
  • Ghalibaf: "the Strait of Hormuz will not return to pre-war conditions"

Expert Quotes

  • Mohammad Reza Farzanegan (Philipps-Universität Marburg): "I would be cautious in treating the surplus forecast as settled... The market is now pricing a recovery of Hormuz flows and a temporary opening for Iranian oil exports, but both assumptions remain fragile."
  • Kevin Morrison (IEEFA): "This volume is unlikely to be reached until sometime next year given the damage done to some of the production infrastructure during the conflict."