Oil producers cannot simply flip a switch.
After more than three months of closure that sent oil prices surging to historic highs, the Strait of Hormuz is set to reopen following a ceasefire agreement between the United States and Iran, announced by President Trump at the G7 summit. The passage carries nearly a fifth of the world's oil, and its disruption has been felt in every economy on earth — in fuel prices, food costs, and the quiet anxiety of central banks weighing their next move. Yet the end of the blockage is not the end of the story: markets, supply chains, and households will spend months absorbing the damage already done, and the durability of the deal itself remains an open question. What reopens on Friday is a channel of water — what takes far longer to reopen is the trust, stability, and economic confidence that flowed through it.
- Oil markets endured their largest supply disruption in modern history, with Brent crude nearly doubling from under $70 to over $120 per barrel as hundreds of millions of barrels were locked out of global trade.
- The ceasefire announcement has calmed the worst fears, but conflicting signals from Washington and Tehran leave the terms of the deal — and Iran's future role over the strait — genuinely unresolved.
- Even with the strait open, the physical machinery of global oil shipping cannot restart overnight: diverted vessels must return, damaged infrastructure must be repaired, and stored Gulf oil must clear before supply normalises over three to six months.
- Australian petrol prices have been cushioned by a government excise cut set to expire at the end of June, and Prime Minister Albanese has yet to decide whether to extend it — a choice that will directly shape near-term inflation.
- Farmers, food producers, and businesses across the supply chain have already absorbed cost increases that won't simply reverse, and fragile confidence will depend on whether the strait stays open and the promised toll-free passage holds.
The Strait of Hormuz is set to reopen after more than three months of closure, following a ceasefire deal between the United States and Iran formalised at the G7 summit. President Trump announced the passage will be fully operational by Friday, ending what energy analysts are calling the largest disruption to global oil supply in modern history. Nearly a fifth of the world's oil normally flows through the strait, and its closure sent Brent crude rocketing from below $70 per barrel in February to peaks above $120 in April.
But the reopening will not deliver instant relief. Analysts estimate it will take three to six months before the effects reach consumers, as oil producers restart operations, repair infrastructure, and redirect diverted shipping vessels back to the Gulf. Spot prices may ease within weeks, and futures markets should respond more quickly — but a significant complication lingers: it remains unclear whether Iran will retain any authority over the strait. Conflicting statements from both sides suggest the deal may be less settled than Trump's declarations imply.
For Australian drivers, petrol prices have actually been tracking below pre-war levels, partly because the federal government cut the fuel excise by 26 cents per litre. That discount expires at the end of June, and Prime Minister Albanese has not yet committed to extending it. Experts don't anticipate a dramatic jump at the pump either way, but the decision will shape the near-term inflation picture.
Food prices carry a different risk. Much of Australia's recent food inflation has been driven by strong overseas demand for red meat rather than fuel costs, meaning the worst-case scenario of severe food inflation may be avoided. But farmers — already recovering from drought, floods, and bushfires — warn that rising input costs hit them directly and linger long after headlines move on. The National Farmers' Federation notes that fertiliser security for current plantings remains a concern, and fresh produce and dairy face the most immediate pressure.
Broader economic confidence is beginning to stir, with the reopening easing pressure on the Reserve Bank to raise interest rates further. Yet the damage is already embedded in the system: businesses across the supply chain have absorbed higher costs for petroleum-based inputs, headline inflation surged to 4.6 per cent in March, and companies like Bega Group reported cost increases of 10 per cent by early May. How quickly businesses revise their price expectations — and whether the strait genuinely stays open — will determine how fast that confidence can hold.
The Strait of Hormuz is about to reopen after more than three months of closure, and the world's oil markets are bracing for what comes next. President Trump announced at the G7 summit that the passage will be fully operational by Friday, when a ceasefire agreement with Iran is formally signed in person. The deal, electronically signed over the weekend, promises to restore one of the planet's most critical shipping arteries—the channel through which nearly a fifth of global oil normally flows. Trump declared "Let the oil flow!" on social media, signaling the end of what experts are calling the largest disruption to energy supply in modern history.
The numbers tell the story of how severe the closure has been. Brent crude oil prices rocketed from below $70 per barrel in February to peaks above $120 in April, as hundreds of millions of barrels vanished from global markets. That shock rippled through every economy connected to oil—which is to say, all of them. But here's what matters for anyone watching their wallet: the reopening won't instantly reverse those price spikes. Energy analysts at firms like MST Financial estimate that even in the best case, it will take three to six months for shipping to fully resume and for the effects to reach consumers. Oil producers cannot simply flip a switch. They need time to restart production, repair damaged reservoirs and infrastructure, and clear out the backlog of oil already stored in the Gulf waiting to ship out.
The logistics are more complicated than they first appear. Ships currently sitting in the Gulf can leave as soon as the strait opens, but the vessels that normally carry oil through the passage have been diverted elsewhere—to the United States, the Red Sea, and other routes. Those ships now need to make the journey back to the Gulf to resume their usual work. Spot prices, the immediate market rates for barrels, could drop within a few weeks, according to economists at AMP. Oil futures—the expected prices months ahead—should fall more quickly as traders price in the reopening. But there's an unresolved complication: it remains unclear whether Iran will retain any control over the strait. Conflicting statements from Washington and Tehran suggest the terms of the deal may not be as settled as Trump's declarations suggest. If Iran does maintain some authority, new negotiations would be needed, and traffic might never return to pre-war levels. One analyst estimates that building new pipelines to bypass the strait entirely would take three to five years.
For Australian drivers, the picture is mixed. Petrol prices have been tracking downward since April, and as of mid-June, unleaded 91 was averaging around 170 cents per litre—actually below where it stood when the war began in late February. That's partly because the federal government cut the fuel excise by 26 cents per litre to cushion the blow. But that discount expires at the end of June, and Prime Minister Anthony Albanese has not yet committed to extending it. He says the decision will come next week, after the expenditure review committee reconvenes. Even if the excise is fully reinstated, experts don't expect a dramatic jump at the pump—more likely a modest increase. The broader question is how long the government can afford to subsidize fuel prices while the economy adjusts.
Food prices present a different kind of risk. The true impact of higher oil costs on Australia's food supply chain has not yet fully materialized, according to AMP's analysis. Much of the recent food price inflation has been driven by strong overseas demand for Australian red meat rather than by higher fuel and fertiliser costs. With the strait reopening, Australia should dodge the worst-case scenario of severe food inflation. But the farming industry sees it differently. Hamish McIntyre, president of the National Farmers' Federation, points out that farmers operate on razor-thin margins and absorb rising input costs directly. They plant crops months in advance and need to secure fertiliser well ahead of time. While most farmers managed to lock in enough fertiliser for winter crops earlier in the year, maintaining supplies for current plantings remains a concern. Fresh produce, dairy, and other perishables face the most immediate pressure. Farmers are still recovering from drought, floods, and bushfires—shocks that take years to overcome—and new cost spikes only deepen the strain.
The broader economic picture hinges on what happens next. The reopening of the strait should relieve pressure on the Reserve Bank to raise interest rates further, at least in the near term. But the damage from the oil price spike has already been done. Businesses across the supply chain—from packaging manufacturers to cleaning product makers to cosmetics companies—have absorbed higher costs for resins, chemicals, and other petroleum-based inputs. Bega Group, a major dairy and food company, reported that its costs had jumped 10 per cent by early May. Headline inflation surged to 4.6 per cent annually in March, up from 3.7 per cent the month before, driven largely by fuel prices. It eased back to 4.2 per cent in April when the excise cut took effect, but if that cut expires, inflation could bounce again. The real question now is how quickly businesses will adjust their price expectations once they see how fuel markets actually behave in the coming weeks. With the deal done, economists expect consumer and business confidence to begin recovering from the slump of recent months—but that confidence will be fragile, dependent on whether the strait actually stays open and whether the promised toll-free passage holds.
Notable Quotes
Every spike in input costs cuts directly into already tight margins, putting pressure on family farm businesses and increasing the risk of reduced production.— Hamish McIntyre, president of the National Farmers' Federation
It will likely take a few weeks for spot prices to drop, but oil futures will likely drop quickly.— My Bui, economist at AMP
The Hearth Conversation Another angle on the story
Three months of closure, and now it's supposed to reopen by Friday. Why does it take so long for prices to come back down if the oil is flowing again?
Because oil isn't like flipping a light switch. The producers have to restart wells that may have been shut down or damaged. The ships that normally carry oil through the strait have been sent to other routes—they're not waiting outside the Gulf. They have to sail back. And there's already a backlog of oil sitting in storage waiting to ship. All of that takes time to unwind.
So if I'm buying petrol next month, will I notice a difference?
Probably not much. The government's fuel excise cut is expiring at the end of June, so you might actually see prices go up slightly even as global oil prices fall. The real relief comes in three to six months, when the supply chain has fully adjusted.
What worries you most about this reopening?
Whether Iran actually accepts the terms. If they retain control of the strait and start charging tolls or restricting traffic, the whole benefit disappears. And farmers are already squeezed—they can't pass costs to buyers the way other businesses can. If fertiliser stays expensive much longer, food prices could spike hard.
Is there a scenario where this doesn't work out?
Yes. If the ceasefire falls apart, or if Iran and the US can't agree on the terms, the strait stays closed or partially closed. Then we're looking at sustained high inflation, interest rate hikes, and real pain in the food supply chain. The farming industry is betting this holds, but they're not confident yet.
What should people watch for in the next few weeks?
Watch whether the strait actually opens on schedule. Watch what happens to oil futures prices—they'll move fast. And watch whether the government extends the fuel excise cut. That decision will tell you a lot about how confident they are in the recovery.