Strait of Hormuz re-opening ‘matter of weeks rather than months’

The Strait of Hormuz is likely to re-open in a matter of weeks rather than months as an agreement to end the military conflict between the US and Iran draws closer, according to a global strategist.

The upbeat outlook comes from Nenad Pacek, head of MEA Logistics and Customs Compliance at the EMEA Business Group – a corporate advisory and networking service designed for regional directors of major multinationals.

Iran’s Surprising Resilience

Speaking at a webinar hosted by DHL Global Forwarding on the Middle East crisis, he explained that his company has been producing regular country reports on Iran over a long period and that what stands out is the Islamic Republic’s resilience, its preparedness for the war taking place today and its ability to control the Strait of Hormuz.

“In controlling this Strait, it can ‘control’ the global economy and bring the war to an end sooner rather than later by putting enormous pressure on Trump to compromise.

“And although the US is blockading its ports, Iran is not unduly concerned. It has a 25-year strategic partnership deal with China, signed during the Biden presidency. One can assume that China has been helpful to Iran during this war and blockade, for example, financially, in maybe paying for their oil in advance.”

At the same time, Iran has been brought into the BRICS Group of nations which is running a global power financial infrastructure, a new IMF, and new World Bank, Pacek highlighted.

“Iran, as a new member, of the BRICS can enjoy financial support from these new multilateral institutions as well. In other words, Iran can wait whereas the US cannot, because the mid-term elections are coming very quickly.”

China as Mediator?

Pacek pointed to Trump postponing imminent, fresh attacks on Iran earlier this week, purportedly following discussions with the Gulf Co-operation Council (GCC) of states.

“They (the GCC) were probably telling him, 'If you escalate, will we be able to properly defend ourselves? Will this be an escalation without really an exit strategy anymore?' So, this is another sign that we might be very close to some form of an agreement in the weeks to come.”

He also emphasized the role of China as a mediator in the conflict and that the recent meeting in Beijing between Trump and Xi Ping would likely have been an occasion for serious discussions on how to bring this war to the end.

“Indeed, China has no interest in this war continuing. Not only does China rely on petrochemicals and oil and gas coming through the Strait of Hormuz, it is the largest trading partner of all the GCC markets and the largest manufacturing investor as well. With China increasingly losing some access to US markets, it is looking to do even more business in lucrative markets like the GCC.

“So, it can certainly put pressure on Iran to compromise on a number of things that the US has requested. At the same time, China has surely also looked for ways to enable Trump to proclaim victory and Iran too because at the end of the day this is all about face-saving.”

Nuclear Agreement the Key

With Trump reducing his war goals to Iran not having any nuclear weapons, negotiations to the end the hostilities will focus on the concessions the Teheran administration is ready to agree to on this issue, Pacek observed.

“In the talks in Geneva before the war, Iran showed a willingness to dilute its stock of enriched uranium or even move it to another country as well. But it will not compromise its international right to enrich uranium for civilian purposes. So, this condition will probably stay.”

The outcome in the coming weeks, rather than months, will be a sort of arrangement that goes somewhat beyond the accord reached between Iran and several world powers, including the US, in July 2015 which Trump withdrew the country from in 2018, according to Pacek.

“It has to go beyond the 2015 agreement because Trump cannot proclaim victory if it's only a 10-year horizon moratorium on any enrichment. So, I think it will end up being extended to something like 12-15-years. So, this is the ‘base case scenario’ which should bring us close to the end of this war during the month of June.

Prospect of Worst-Case Scenario ‘Pretty Limited’

Re-opening the Strait of Hormuz will be “phenomenally good news” for the global economy and particularly for the GCC and give businesses visibility to start spending and investing again, Pacek noted.

It will also lead to a regain in confidence on the part of consumers and businesses and governments too, in terms of the cost of borrowing and cost of servicing debt not only in the GCC but worldwide as well.

However, Pacek was swift to underline that the ‘worst case scenario' should not be overlooked.

“In every war, including this one, there are miscalculations and unintended consequences, and something can still trigger escalation and provoke another round of fighting.

“But at this stage it's simply enough to say that shippers and logistics services providers should have contingency plans at the ready in the event of the worst-case scenario even though the prospect of it happening is pretty limited at the moment.”