Oil tanker CEO sees Hormuz ship traffic quickly increasing if U.S. and Iran reach a deal

Commercial ship traffic through the Strait of Hormuz should quickly increase if the U.S. and Iran reach a stable agreement that improves security in the strategic sea lane, the CEO of a leading oil tanker company told CNBC.

"I'm actually very optimistic the minute the tide turns and the U.S. and Iran have found some sort of agreement, at least not to attack shipping, that those transits are going to resume pretty quickly," said Lars Barstad, CEO of the publicly traded tanker company Frontline, in an interview this week.

Headquartered in Cyprus, Frontline has a fleet of 80 vessels that transport crude oil and petroleum products around the world. Five of its tankers are currently stuck in the Persian Gulf due to the closure of Hormuz, Barstad said.

Traffic through Hormuz will not return anytime soon to prewar levels when 130 to 140 vessels crossed daily, Barstad said. But a credible deal between the U.S. and Iran should lead to a material increase above the trickle of five to 10 ships currently transiting the strait daily, the CEO said.

Some shipping companies have positioned tankers close to the Gulf in order to cash in on a reopening of Hormuz, Barstad said. Frontline has not positioned vessels for an opening, he said.

"Certain actors are positioning themselves purely commercially to try and be near this kind of opening scenario," Barstad said. "You could say keeping the ship is like holding on to a call option on something that might happen."

But it is far from clear whether the U.S. and Iran will reach an agreement as the security situation remains volatile. President Donald Trump threatened to bomb Iran Thursday night only to abruptly cancel the planned attack citing discussions with the Islamic Republic.

It has become a familiar pattern. Trump threatens a major escalation only to pull back and claim a deal with Iran is near. The cycle then repeats itself.

"Every week coming into the weekend, we're very close to solution here and then every Monday we get disappointed," Barstad said.

Shippers will eventually grow tired of positioning themselves for an opening that doesn't materialize and have to decide whether to send their tankers elsewhere, he said.

About 10% of the world's biggest tankers, the very large crude carriers, are stuck in the Gulf right now loaded with oil, Barstad said. Each of those vessels can carry up to around 2 million barrels. These will be the first batch of ships that exit Hormuz when there is an opening, he said.

The Gulf states are desperate to export crude because their storage is full and the disruption in the strait has been a huge cash drain for them, the CEO said.

"You're going to get a lot of oil that moves on to water," Barstad said. But there will be some logistical challenges to loading the oil the Gulf states want to export, he said.

The tanker fleet has been dispersed all around the world to fetch oil from regions like the U.S. Gulf Coast while Hormuz is closed. Saudi Aramco CEO Amin Nasser said in May that repositioning tankers will be the biggest obstacle to increasing oil flows through Hormuz.

But the freight rates will be so high that it will attract tankers back to the Middle East, Barstad said. Tankers that are transporting crude from the Americas to Asia will only be 30 days away from the Persian Gulf after they deliver their cargo, he said.

But the Middle East exporters might not be able to fully recover their prewar production quickly, Barstad said. Some oil wells that were closed during the war may have been permanently damaged due to a loss of pressure and water contamination, he said.

"I don't think we can get around the fact there's going to be less oil coming out of the Middle East than what we had pre-closure," Barstad said.

Many shippers are just waiting for the threat assessment to be downgraded from the highest alert levels before crossing Hormuz, Barstad said.

The Joint Maritime Information Center warned the shipping industry as recently as June 4 that the threat facing vessels in Hormuz was "critical" due to an "elevated risk of attack or miscalculation." The JMIC is a security organization headquartered in Bahrain that coordinates between allied navies and merchant ships in the Middle East.

"It means that you should expect to be hit with something if you go through, so that's kind of the highest level risk assessment," Bartsad said.

The JMIC downgraded the threat assessment in Hormuz on June 7 from critical to severe, the second highest level, "due to the number of safe transits conducted via the southern route" near Oman's coast. But the organization warned that there was still an "elevated risk of attack" in the strait.

"When some of these red lights become orange or yellow, you're going to see a fairly quick move of owners starting to call and go through the Hormuz Strait," the Frontline CEO said.

Traffic through Hormuz has already increased. Trump said Wednesday that U.S. Navy has secretly helped 200 commercial ships and more than 100 million barrels of oil through Hormuz over the past month.

Barstad said about half the ships transiting Hormuz right now are using the route designated by the Iranians, while the rest are sailing through the southern route near Oman.

Iran and Oman have reportedly held talks on imposing transit fees when Hormuz opens. The Trump administration adamantly opposes a toll system. The Treasury Department has sanctioned Iran's Persian Gulf Strait Authority.

The shipping industry does not like the idea of transit fees at all, Barstad said. But shippers are pragmatic and will adapt if some sort of toll system does emerge from a deal between the U.S. and Iran, he said. Tolls are paid to transit the Suez and Panama canals, the CEO said.

"Ultimately it's the consumer that picks up the bill," Barstad said.