This week’s interim deal between the U.S. and Iran to end hostilities and reopen the Strait of Hormuz avoided the worst possible scenario for oil markets. Assuming the deal holds, the flow of oil out of the Persian Gulf will pick up and the global economy will escape the much feared shortages and price hikes, along with the eventual recession, that seemed imminent.
But declaring a return to normal would be a mistake. Indeed, the situation remains anything but. This year’s energy crisis will leave a mark with long-term implications not just for oil markets but across the whole energy sector. "I don't think this is a utopian resolution that says we can just look at ‘normal’ or pre-crisis markets anytime soon,” says Arjun Murti, a partner at Veriten, an energy research investment and strategy firm. This will be “measured in years,” Murti says, “not months or weeks."
Markets will expect continued volatility and will price it in accordingly. Governments and energy-intensive firms will look at electrification with newfound interest. And companies will adjust their approaches to how they make big capital decisions with resilience in mind.
The first thing to expect is that companies will need to embrace the volatility—or suffer the consequences. Oil markets have always experienced boom and bust cycles. Tight supplies brought more investment, which in turn led to too much production for the market support. Rinse and repeat. But this crisis has forced executives and policymakers to grapple with much broader volatility, including questions about the foundations of the whole system. Or what oil analyst Bob McNally previously described to me as “load-bearing assumptions.” If the Strait of Hormuz can close, all bets are off about the other foundations of the energy system.
For companies in the oil and gas sector, Murti says, this may mean building a fortress balance sheet that can weather disruptions. The crisis also provides a busines
