Despite the daily drumbeat of newswire headlines about an imminent Memorandum of Understanding and reopening of the Strait of Hormuz, the three-month anniversary of the Iran war was marked by yet another round of missile and drone strikes. On Thursday, the U.S. intercepted four Iranian drones in the Strait of Hormuz and conducted strikes on Iranian military positions near Bandar Abbas. The IRGC responded by launching a ballistic missile targeting a US base in Kuwait, which was successfully intercepted by Kuwaiti forces. The kinetic action followed earlier U.S. strikes on May 26 against two vessels laying mines in the Strait and against a surface-to-air missile site in Bandar Abbas.
Following these flare-ups, reports surfaced that both sides were poised to sign a 60-day ceasefire extension leading to further negotiations and unrestricted navigation through the Strait. However, headlines and oil price movements appear to be running ahead of reality regarding an actual deal. The original imminent MoU story broke three weeks and nearly 300 million barrels of lost production ago. Hours after the latest market sell-off, reports emerged of Iranian missiles being fired at multiple ships that failed to coordinate passage with the IRGC. Moreover, even if higher transit volumes are allowed under an interim agreement, initially these would be largely one-directional, adding to the complicated logistics of unblocking the waterway.
"February 27, 2026, may come to mark the high point of Hormuz tanker transits for the foreseeable future."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
February 27, 2026, may mark the high point of Hormuz tanker transits for the foreseeable future. Any end to the conflict that leaves Iran exercising operational control and influence over the Strait will result in appreciably lower flows through the waterway. An acceleration of Emirati alternative access route plans is already underway, and Saudi Arabia is expected to continue utilizing the East-West Pipeline at elevated levels.
Western shipping companies will likely remain reluctant to transit the waterway even with a 60-day MoU in place, given the ever-present risk of recurrent military action involving missiles, drones, and mines. These obstacles are compounded by extremely elevated insurance rates and the legal difficulties associated with paying or coordinating with IRGC entities under U.S. sanctions. Shipping industry experts have already indicated that an Iranian-controlled reopening scenario would likely result in restricted volumes and that a clear Iranian military defeat and unrestricted transit access are likely prerequisites for full Hormuz recovery.
We wonder whether some elements in Iran favor maintaining the current no-war, minimal-oil status quo, believing the country's bargaining position will improve once summer is in full swing. Though the double blockade has strained government finances and oil sector operational efficiency, Iran continues receiving cash via the sale of previously sanctioned barrels under waiver and Strait of Hormuz transit fees. The government has avoided widespread protests during the ceasefire and has reportedly used the pause to rebuild military capabilities. The IRGC may believe it has time on its side.
When the war began in winter, few anticipated it would last until summer. Abundant inventories and coordinated strategic petroleum reserve releases helped mitigate the initial supply shock. A mindset treating every "over-soon" announcement as breaking news despite ongoing diplomatic deadlock has also kept a lid on prices. But as the war crosses the three-month mark, the world's energy shock absorbers are rapidly eroding, and time is running out to reopen the Strait and stave off a hard landing.
As the crisis has dragged through its third month, significant inventory drawdowns have continued, driven by Middle Eastern disruptions. At current observed rates based on a six-week average, inventory cover (measured as onshore crude stocks relative to refinery runs) could reach 30-40-day levels by October. This would mark the lowest point in the dataset beginning in 2016, and levels below this would likely jeopardize normal industry operations through bottlenecks and feedstock constraints. The pace of inventory draws will likely accelerate in coming weeks, threatening to shift this timeline forward and compress days of cover further.
"The June-July-August period will seriously stress-test a market that has thus far talked itself out of the worst-case scenarios."
Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets
The current rate of inventory draws could be undercounted due to data constraints in less visible markets such as China, suggesting actual declines exceed observed figures and pain may arrive sooner. While "critical" inventory levels can be defined various ways and refinery margins should change behavior before reaching absolute extremes, different geographies will reach acute impacts at varying paces. Across the board, however, physical reality becomes analytically challenging to ignore if this conflict drags well into summer. The June-July-August period will seriously stress-test a market that has thus far talked itself out of worst-case scenarios.
Helima Croft authored "Iran Update: As Time Goes By…," published on May 28, 2026. For more information on the full report, please contact your RBC representative.
