The sudden collapse of global paper crude prices following a tentative US-Iran agreement to reopen the Strait of Hormuz underestimates the severe logistical friction and security risks of restoring physical oil flows. Operational constraints, such as extensive mine-sweeping operations, delayed maritime insurance underwriting, and a slow evacuation of hundreds of trapped vessels, mean a full supply chain recovery will take months rather than weeks, keeping structural physical market balances highly volatile. For Mexico’s Ministry of Finance (SHCP), this protracted normalization warning indicates that while near-term export revenues face paper-market downward pressure, ongoing physical tight supply will likely sustain the Mexican crude mix well above federal budgetary targets while extending the state’s costly fuel subsidy liabilities.
Neil Crosby, Head of Oil Analytics, Sparta Commodities, warns traders and policymakers against taking the post-ceasefire price collapse at face value, arguing that both the speed of the drop and the assumptions underpinning a swift Strait of Hormuz normalization are running well ahead of physical reality. The analysis lands directly on the question Mexico’s SHCP must now answer: how much of the current oil price relief is durable, and how much is a market that got ahead of itself.
Crosby notes that the memorandum of understanding text is on track for Friday signing, and that Iran has “won” on paper. The draft text shows a remarkably strong deal for Tehran: sanctions relief, crude waivers, and an agreement to open Strait traffic with zero mention of tolls. The long-term nuclear question lingers, and Israel remains a “total wildcard.” Crosby assesses that the US administration has made significant concessions, which may nonetheless be domestically acceptable given the conflict’s deep unpopularity, but flags a high chance of re-ignition, particularly in Lebanon, that could jeopardize the deal.
That re-escalation risk is precisely the dynamic that has defined this conflict since February: a ceasefire announced, prices collapsing on the news, then renewed strikes reopening the same wound weeks later. The April ceasefire and the brief de-escalation in late May both followed that pattern before strikes resumed in early June.
The Mechanics of the Price Move
Crosby expects a roughly US$5 knee-jerk drop on signing, on top of the momentum already dominating the market. If the deal is signed, Brent could fall another US$5-10/b lower. After that wash-out, the next step is tracking actual shipping reality in the Arabian Gulf and other large market pieces, demand, US exports, Chinese imports. Crosby believes the market may already be in oversold “paper crude” territory, and will be even more so upon signing.
He assigns a modest but rising probability to an even more bearish scenario. There is a small but growing chance, around 10%, that summer commercial crude balances might not look that short, if Arabian Gulf supply and traffic normalize rapidly, politics stay clean, the SPR flow remains steady, and China’s currently low crude buying stays put. Under that scenario, the summer crude balance would not look as bad as low stockpile levels suggest, though this could manifest as weak physical crude premiums even as paper crude is gradually pushed back into backwardation near US$90+/b.
Why Hormuz Won’t Snap Back Overnight
The core of Crosby’s skepticism is about logistics, not politics. He places decent odds, around 50%, that Hormuz shipping will not normalize for some time, characterizing talk of full flows within a week or two as too optimistic. Shipowners remain highly uncomfortable, and before tonnage commits en masse, P&I clubs need to get comfortable and shipping lanes need to be swept for mines. An initial uptick in traffic from owners already pre-positioning is likely, but not a maximum rush to the Gulf just yet, meaning outbound traffic may create more positive optics in headlines than the sustainable reality underneath.
Crosby describes the supply gap returning in two sticky waves: trapped vessels exiting the Gulf first, followed by inbound ballasters, with bullish rates expected on the relevant tanker routes. Roughly the first half of the lost Arabian Gulf supply comes back quickly once ships are in place, but the remainder is a slog that could take months, with several unknowns likely to cause hiccups along the way.
One of Crosby’s sharper observations concerns how the US administration has been managing market psychology throughout the conflict. He argues the US did “a phenomenal job jawboning the market down” over recent months, describing the constant dangling of a real deal as a “Verbal Price SPR” that scared long positions out of pricing the low-inventory reality. Ironically, he suggests it may now require a finalized, firm deal path to stop that effect, allowing the market to start pricing real balances again, assuming normalization does not materialize perfectly.
That dynamic, official signaling suppressing prices below what physical fundamentals would otherwise support, has direct relevance for how the SHCP should weigh its own fiscal price assumptions. If the verbal dampening effect unwinds faster than physical supply actually recovers, prices could snap back upward even after the deal is signed.
Crosby also flags a divergence between crude and refined products: refined products will take longer to normalize than crude, since refineries are slower to spool back up and supply chains take longer to rebalance, while lower retail prices should let end-user demand snap back relatively quickly. If there is still room for pricing to spike outside of politics and headlines, the chance is greater for products, even though paper crude currently looks the most oversold.
What This Means for Mexico’s Fiscal Calculus
Crosby’s framework adds an important layer of nuance to how Mexico should be reading the current price environment, particularly after Georgieva’s parallel IMF warning earlier this week that physical energy recovery would lag the ceasefire announcement. Mexico’s export blend traded at approximately US$106/b in mid-May, roughly 93% above the US$54.9/b price assumed in the original 2026 federal budget, and the SHCP’s own revised assumptions place the fiscal reference closer to US$77.3/b.
If Crosby’s $10-15/b knee-jerk decline scenario materializes upon Friday’s signing, Mexico’s export blend could fall toward the high US$80s to low US$90s, still comfortably above both budget references, preserving meaningful fiscal headroom. But if his 50% probability assessment that Hormuz shipping fails to normalize quickly proves correct, the subsequent price recovery as the “Verbal SPR” effect unwinds could push prices back upward within weeks, repeating the volatility pattern Mexico’s fiscal planners have now navigated three times since February.