Why a peace deal with Iran won't save the economy from energy-market chaos this summer

• An Iran peace deal won't be an quick fix for fuel shortages and high oil prices.
• Market distortions will still impact the economy even if a peace deal is finalized soon.
• Crude reserves will likely be depleted right as summer begins, according to some forecasts.

A US-Iran peace deal may be close, but relief from the disruptions caused by the conflict is a more distant reality.

That idea that the conflict's end might be not be a quick fix for the energy market hasn't been digested yet, with oil prices plunging on Wednesday on news that a deal was at hand.

Investors cheered a report from Axios that said the US and Iran were nearing a resolution that could end the war, and, importantly, reopen the Strait of Hormuz to get oil flowing to the world again.

But the notion that oil markets will revert back to normal once the war ends is unrealistic, according to energy experts, who are eyeing at least several months after the end of the war before crude markets will normalize.

In the meantime, that means almost nothing can stop the economy from feeling the impacts of depleted reserves, critical fuel shortages, and high prices.

Jeff Currie, a longtime commodities analyst and the chief strategy officer of Energy Pathways at Carlyle, said he believes much of the damage the war has inflicted on oil markets will be felt in the medium-term. Speaking to Bloomberg on Wednesday, he pointed to how shippers and insurers need to regain confidence that traveling in the Strait is safe again before starting to reconfigure ship traffic.

"That's three months bare minimum," Currie said of the lasting impact of the war, despite oil prices tumbling lower in the morning.

True supply shortages will hit

Currie said the current supply situation in the US and Europe is an oil deficit as opposed to an actual shortage, since nations are drawing on oil reserves. Once reserves run out, true oil shortages will begin, he said, speculating that distillate and jet fuel would likely be the first crude byproducts to run out.

"It's baked in, full stop," Currie said of coming fuel shortages, even if the war were to end today. "It's going to take so long to get all this restarted that those inventories will continue to draw."

Currie said oil stores were already being depleted in pockets of Asia. Stores will likely hit "tank bottoms" in Europe in May, while the US will likely run out of its reserves by the fourth of July, he estimated.

HFI Research, an investment research firm specializing in energy, said it also anticipates shortages to hit the global economy in the coming months. In a recent note, the firm predicted that the US could run out of "buffer" crude product stores in two weeks, while buffer oil stores could run out in eight weeks.

Forecasters are particularly concerned about outlook for fuel.

Christopher Hodge, chief US economist at Natixis CIB Americas, noted that while a jet fuel shortage would be highly inflationary for all aviation-exposed sectors in the short term. However, he added that the broader consequences likely won't be confined to the travel industries.

"Households paying more for airfare, gasoline, or delivered goods have less income to spend elsewhere," he told Business Insider. "That means discretionary categories, restaurants, leisure, retail goods, entertainment, and nonessential services, could see softer demand and weaker pricing power over time."

Brett Massimino, department chair supply chain management at Virginia Commonwealth University, added that other areas of transportation that are already under pressure could be further impacted by a jet fuel shortage.

"We're already seeing diesel prices at $6.00 or more per gallon in the US," he said. "Higher diesel prices work their way into nearly every product a consumer buys, as it's a vital component of the agriculture, production, and transportation."

Goldman Sachs said it believed European commercial jet fuel inventories could fall by the International Energy Agency's key 23-day threshold by June.

More flights are likely to get canceled as jet fuel runs low, HFI said in a note. HFI Founder Wilson Wang told Business Insider that the final economic impact depends on how many carriers slash flights.

Matt Smith, the director of commodity research at Kpler, said he was also concerned about flight cancellations through the summer travel season as fuel stores dwindle.

"Jet is the first one to go. Asia is the first region, but it's going to spread across the globe," he said, speaking to CNBC this week.

Higher prices will be here for a while

Oil prices are likely to stay well above pre-war levels for some time.

Brent crude, the international benchmark, tumbled as much as 9% in the early morning to $97 a barrel on Wednesday, but crept back above $100 line later in the day.

HFI predicted there would be a "ripple effect" in oil markets as the supply shortage triggers panic buying in areas like Asia. Increased demand will raise oil prices, which will raise profit margins for refiners. That will further stoke oil demand and raise prices, the firm speculated.

The firm said it saw oil prices surpassing their 2008 peak to top $150 a barrel.

Chris Whalen, a longtime analyst and the chairman of Whalen Global Advisors, recently told BI he believed the inflationary impacts of higher oil prices would likely stick around for years to come, even if the Strait of Hormuz were to open shop tomorrow. He pointed to how shipping has been severely disrupted in the Middle East, as well as the fact that energy infrastructure that's been destroyed in the region will take years to rebuild.

"You're talking about months or years, depending on how much damage," Whalen said in April.

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