Ep 218 | Rory Johnston
This War Changes Everything: Are We Ready for Energy Shockwaves From the Strait of Hormuz?
Description
Over three-quarters of the global population has never lived through a major global energy crisis, such as those of the 1970s. In early 2026, that is about to change as the world faces the largest energy disruption in history, measured by the daily loss of oil output. This crisis won’t be evenly distributed but will be felt everywhere – and is guaranteed to have ripple effects we won’t see coming. How much oil remains in circulation, and what level of damage has already been inflicted on our global energy infrastructure?
In this episode, Nate is joined by oil market analyst Rory Johnston to discuss how the Strait of Hormuz closure has led to the largest oil supply shock in history, and what the exact numbers and cascading effects are. He also breaks down the primary strategies countries will have to use to adapt to energy losses, including resorting to demand destruction, and what the disastrous risks are if shortages are allowed to persist. Rory also explains the lag between the closure, the real world impact of oil not being able to enter global circulation, and the market’s response. Ultimately, Rory and Nate explore the impact of this situation on international trust and cooperation, and what that might mean for a global market system predicated on interdependence and free trade.
Who are the energy winners and losers in this war so far, and how are our global leaders accounting for the exponential risks of continued warfare? In what way can average people prepare for the energy shocks soon to ripple out across the globe? And lastly, if we do recover from this scenario, how might we treat these disruptions as a dress rehearsal for a future of lower material throughput by building greater resilience and interconnection at the local level?
About Rory Johnston
Rory Johnston is a Toronto-based oil market researcher, the founder of Commodity Context, a lecturer at the University of Toronto’s Munk School of Global Affairs and Public Policy, host of the Oil Ground Up podcast, as well as a Fellow with both the Canadian Global Affairs Institute and the Payne Institute for Public Policy at the Colorado School of Mines. He is a leading voice on oil market analysis, advising institutional investors, global policy makers, and corporate decision makers.
Prior to founding Commodity Context, Rory led commodity economics research at Scotiabank where he set the bank’s energy and metals price forecasts, advised the bank’s executives and clients, and sat on the bank’s senior credit committee for commodity-exposed sectors.
Show Notes & Links to Learn More
Download transcriptThe TGS team puts together these brief references and show notes for the learning and convenience of our listeners. However, most of the points made in episodes hold more nuance than one link can address, and we encourage you to dig deeper into any of these topics and come to your own informed conclusions.
00:00 – Rory Johnston:
- Fellow at Canadian Global Affairs Institute and the Payne Institute for Public Policy
- Substack: Commodity Context, Podcast: Oil Ground Up, X account
00:45 – Strait of Hormuz Crisis and its ripple effects throughout the economy, Iran War 2026
03:40 – Flow rate in the oil market
03:45 – 105 million barrels/day before the Iran War
03:55 – ~20% of global energy passes through the Strait of Hormuz
04:05 – Products passing through the Strait of Hormuz: Crude oil, Middle distillates (jet fuel, diesel) going to East Africa and Europe, Natural gas liquids (propane, butane) going to Asia
04:28 – Petrochemical feeds
04:38 – Maritime chokepoints
04:42 – Dune, Frankly #61 The Strait of Hormuz and ‘the Spice’
05:10 – History of “Strait of Hormuz closure scares”
05:35 – Iran-Iraq War 1980s
06:05 – Oil supply loss to date is the largest supply shock in the history of the oil market – around 13 million barrels a day (more than half a billion barrels thus far)
06:40 – Saudi Arabia’s East-West Pipeline is carrying more oil during Hormuz crisis
07:03 – Some rerouting capacity in the UAE, Iranian oil continuing to flow through the Hormuz crisis until the U.S. naval blockade
07:30 – When extracted oil doesn’t have egress, wells have to be shut in
08:35 – Fast cycle response rate of the US shale oil
08:45 – Price response rates in the oil industry are typically 5-10 years, U.S. shale is months
09:07 – Peak of U.S. oil production in 2018 grew by 2 million barrels/day (Fastest growth in history)
09:30 – OPEC and non-OPEC supply, UAE says it will leave OPEC effective May 1
09:45 – Expected oil supply growth this year
10:00 – Stock and flows
10:35 – Globally observed oil inventories: 8.2 billion barrels
11:08 – Global strategic oil reserves
11:15 – IEA announced its largest coordinated strategic stock drawdown in history – 400 million barrels
11:30 – U.S. Strategic Petroleum Reserve (SPR)
11:45 – Supply/Demand curve logic, How supply and demand affect the oil industry
12:30 – Oil demand loss during the 2020 pandemic
13:15 – Global daily oil consumption, Purchasable oil in the global market is only about half of the total oil consumed, Understand oil trade and transportation
14:10 – Demand destruction
14:25 – 2022 oil price fluctuation
16:10 – Pig in the Python, Frankly #133 Iran, U.S., and the Rest: The Unavoidable Pig in the Python
16:25 – Asia will be hit first by Hormuz Crisis: Bangladesh is closing schools to conserve electricity, Philippines declared a national emergency
16:38 – U.S. is somewhat energy independent, “U.S. energy dominance” is partly misleading: the U.S. is a net petroleum exporter, but not fully oil independent
16:55 – WTI oil prices
17:23 – Oil tanker travel time
18:13 – Oil wells and refineries need to operate 24/7
18:40 – Strategic Petroleum Reserve releases can soften public perception of an energy crisis while reducing future emergency capacity
19:03 – Biden’s 2022 post-Ukraine-invasion SPR drawdown of 180 million barrels, the largest in U.S. history (prior to Hormuz Crisis)
19:27 – Current U.S. SPR releases have been framed as “exchanges” rather than direct emergency sales, partly because Trump had criticized Biden’s major SPR release
20:00 – SPR “exchanges” require companies to return barrels later, often with in-kind interest
20:45 – U.S. SPR released 172 million+ barrels during the Hormuz crisis, Role of the U.S. SPR during this crisis
21:45 – Critics argue small or repeated SPR releases may damage storage reservoirs
21:58 – SPR salt caverns
21:05 – U.S. government SPR releases
22:20 – U.S. consumes about 20 million barrels of oil per day
23:00 – Global oil stock visibility is incomplete because analysts can only track what is visible: tankers on water and aboveground crude storage (floating roof tanks) via satellite imagery
24:30 – Global crude inventories plunge over 400 million barrels
25:25 – 1973 oil embargo, 1979 Iranian Revolution
25:45 – Stock markets at all time highs
26:00 – Current world is much more energy efficient and less oil intensive than in the 70s, U.S. household budgets from the 70s to now
26:27 – Oil supports more economic activity today than in the 70s, Global GDP growth over time
26:37 – Recent report from Rory’s Substack: Sanguine Strait Stoppage
26:55 – Oil prices have doubled since the start of the Iran War: Brent vs. WTI
28:10 – Spot market clearance dynamics, Futures curve
28:25 – Discount on spot oil, Example: In 2020, oil traded below $0 a barrel for a brief period
28:50 – Market oversupply and how its cleared
29:05 – Contango
29:15 – Bullish vs. Bearish
29:50 – Backwardation
30:40 – Oil prices: 1Y and 18 month projections
31:30 – Infrastructure damage in Iran, UAE, Kuwait
32:20 – How shut-ins affect oil well performance, Oil well physics
33:05 – Saudi Arabia and UAE have track records of being able to turn well production back on
33:30 – Iran has continued oil export for the majority of the crisis until the imposition of the U.S. naval blockade of Iran
34:25 – LNG infrastructure damage in Qatar, South Pars Gasfield attack
34:47 – Reuters article on Qatar Energy CEO saying LNG capacity has been cut by 17% for 5 years (Non-paywalled version)
35:45 – Bab-el-Mandeb Strait and Houthis
36:03 – Frank Herbert
36:15 – Religious framing of the current conflict
36:40 – Forward strip for 2027 natural gas: U.S. vs. European/Asian countries
38:17 – AI Race and global energy
39:00 – Optimal foraging, Cognitive biases (More info), and Risk homeostasis
39:10 – Donald Trump thought Iran would be Venezuela 2.0
40:00 – *No deal signed on Sunday, 26 April 2026
40:47 – ~1000 ships stuck in the Persian Gulf, 20,000 seafarers stuck
41:45 – Nth order effects
42:15 – Life on an oil tanker
43:13 – Many diverted tankers are heading to the U.S. Gulf Coast to load oil
44:27: – U.S. petroleum exports include large volumes of refined products and natural gas liquids
44:40 – Natural gas liquids add roughly 7-8 million barrels per day to U.S. petroleum supply statistics
44:45 – Much U.S. natural gas liquid output is used as petrochemical feedstock, especially for export markets like China
46:18 – How California is affected by the Hormuz Crisis
46:33 – Jones Act and temporary waive
47:15 – U.S. crude oil imports
47:45 – Canada to U.S. oil pipelines
49:45 – Countries with a significant percentage of their GDP as energy imports
51:22 – During the 2021-2022 global gas price spike, some LNG tankers broke contracted deliveries to Pakistan and diverted to higher-paying European markets
52:10 – LPG is ~15% of India’s petroleum demand, India cooking gas shortage
53:45 – Energy blindness
54:17 – 2022 energy crisis (More info)
54:45 – 2022 Russian oil market and subsequent concerns
55:35 – Economic Superorganism (with a metabolism)
56:10 – Game theory
57:50 – China’s electrification push as energy-security strategy more than climate strategy
58:23 – Energy security on a local level
59:05 – Canada Trans Mountain pipeline system, Canadian west coast pipeline proposal goes through
59:23 – Monopsony vs. Monopoly
1:00:05 – Greenland land grab, U.S.-Cuba relations
1:00:50 – Trump threatening Iranian boats laying mines
1:01:18 – New York Times reporter on Iran military reserves, Non-paywalled article on the same topic
1:02:00 – 2019 attack on Saudi Arabia’s Abqaiq facility, Significance of that facility
1:03:00 – Petroleum as a feedstock for fertilizer, helium, petrochemicals, and materials for chip manufacturing
1:04:05 – Countries that subsidize fossil fuels
1:04:35 – The Great Simplification
1:06:00 – Energy and material demand from AI
1:07:00 – Iranian underground military infrastructure
1:07:45 – Current U.S. demands on enrichment, uranium, missiles, or other concessions
1:08:30 – UPDATE SINCE RECORDING: Iran offers to reopen Strait of Hormuz if U.S. lifts its blockade and the war ends
1:10:05 – Trump Congress address a few weeks ago stating we don’t get oil from Hormuz
1:11:20 – Kinetic war vs. Information/propaganda war
1:12:20 – Mark Carney speech at Davos about rupture in international trust
1:12:40 – Post-war global order was heavily shaped by U.S. support of free trade and rules-based institutions
1:14:00 – Commodity economics
1:14:40 – The Prize by Daniel Yergin
1:14:48 – Winston Churchill switching over the Royal Navy from Welsh coal to Persian oil
1:16:10 – Four horsemen of the 2020s
1:17:55 – Weaponizing the dollar, SWIFT, or international payment systems
1:18:20 – Crude oil transportation methods
1:19:40 – Middle distillates can become scarcer and more expensive than gasoline during refining or supply disruptions
1:20:00 – Jet fuel prices
1:20:05 – Crack spread
1:20:20 – Products from a barrel of oil
1:21:40 – Environmental, social, and governance (ESG), Electrification
