Oil flows through the Strait of Hormuz are quietly recovering, with growing optimism over diplomatic efforts chipping away at the war-risk premium that had been embedded in crude prices.

Brent crude dipped to an intraday low of $86.22 per barrel on Thursday before climbing back above $88, marking a 6.3% decline for the week.

Kuwait and Qatar are resuming crude exports through this critical maritime chokepoint, with total daily oil shipments through the strait now at roughly 75% of pre-conflict levels, according to reports. Market fears of supply disruptions have eased considerably. Meanwhile, a senior Iranian source said on the 26th that Tehran and Muscat are "still negotiating details" of an agreement related to the strait, after Iran indicated earlier this month that a deal was close.

This marks a sharp reversal from late April, when Brent had surged past $120 per barrel, though analysts caution that core disagreements between Washington and Tehran remain unresolved. The energy crisis has also shifted from crude supply into refined products, with diesel crack spreads still holding near historic highs.

Shipping volumes rebound rapidly as multiple data sources confirm the recovery

Kuwait and Qatar are currently exporting roughly 70% of their combined pre-conflict volumes of about 2 million barrels per day, according to sources familiar with Gulf energy flows. Overall, oil shipments through the strait via tanker have climbed to between 7 million and 8 million barrels daily, up substantially from approximately 4 million barrels in mid-July and equivalent to about 75% of pre-conflict levels.

London-based energy and shipping analytics firm Vortexa offered an even more optimistic assessment in an independent client note, putting the seven-day average of oil transiting the strait at close to 10 million barrels per day.

Shipping research firm TankerTrackers was the first to flag an increase in ship-to-ship (STS) transfer activity on Tuesday. The firm noted on social media that at least 15 STS operations were underway simultaneously in the Gulf of Oman that day, involving roughly 25 million barrels of crude and some refined products, sourced from nearly every country in the region except Iran. The UAE was the earliest to resume crude shipments through the strait, subsequently transferring cargoes to other vessels in the Gulf of Oman, according to reports.

A diplomatic framework begins to take shape as markets price in peace expectations

The primary driver behind the rebound in shipments is the emerging diplomatic framework between Iran and Oman. The two sides are reportedly discussing the establishment of a "temporary joint maritime corridor" and cooperating on mine clearance operations within the strait. All mines have been cleared, according to remarks made earlier this week.

Market reaction has been notable. "The crude market appears to be starting to price in a peace agreement coming sooner than expected," said Dennis Kissler, senior vice president of trading at BOK Financial Securities, on Wednesday.

Analysts, however, remain cautious about whether this framework will materialize. "The Iran-Oman framework for a 'temporary joint maritime corridor' is pressuring oil prices, but given the US is simultaneously ramping up economic pressure, it is hard to imagine Washington endorsing this," wrote UBS analyst Justinus Steinhorst in a research note. The administration and Tehran remain deadlocked over a mutually acceptable resolution.

Crude prices under pressure, yet the refined products crisis persists

The recovery in strait shipping volumes goes a long way toward explaining Brent's descent from above $120 in late April to the current $80 range. Traders are progressively unwinding long positions built on war-risk premiums.

The shape of the energy crisis, however, is shifting. Damage to Middle East refining facilities, combined with ongoing Ukrainian strikes on Russian refineries, has moved the epicentre of the crisis from crude supply toward a shortage of refined products. US diesel crack spreads remain above $90 per barrel, having touched a record $100 earlier this week, while global diesel inventories stay critically low.

This means that even if crude flows through the Strait of Hormuz recover further, pressure on the refined products market will be difficult to alleviate in the near term, and the structural tightness in the energy market shows no sign of abating.