Ep 240 | Rory Johnston
A Shattered Market?: The Counterintuitive Story of the Hormuz Oil Crisis
Description
With headlines reporting that oil exports through the Strait of Hormuz are recovering to pre-war levels, it seems that the oil supply chains have stabilized – yet prices and availability don’t tell the same story. Over two billion barrels of expected Middle East production have been lost this year, and even with crude exports increasing, refined products, LNG, and fertilizer still lag. What have we learned from the last eight months, with some of the most extreme geopolitical events we’ve seen in decades and a market that didn’t respond as predicted, and what does it tell us about where we’re going next?
In this episode, Nate welcomes back oil market analyst Rory Johnston for an update on how the crisis has evolved since April. Rory explains why diesel is now the epicenter of the crisis, with crack spreads running five to six times their historical norm, driven by both the Iran war and Ukraine’s strikes on Russian refineries. He also unpacks one of the unexpected moves that lessened the severity of the energy shortage: China’s unprecedented 45% cut in crude imports, which he calls the “Beijing Swing.” Tying these trends together, Rory and Nate explore how soaring shipping costs have fractured a once-global oil market into regional pockets and how the poorest nations are bearing the brunt of demand destruction.
If markets have stayed calm because they expect a surplus on the other side of this war, what happens if that surplus never arrives? Are depleted buffers leaving markets vulnerable to smaller disturbances that could trigger sudden price spikes? And in a world of growing data opacity and political spin, how can we find trustworthy signals about the physical systems our economies depend on?
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 transcriptGuest:
Rory Johnston: Founder, Commodity Context, Oil Ground Up, X
- Previous The Great Simplification appearance: “This War Changes Everything: Are We Ready for Energy Shockwaves From the Strait of Hormuz?”
Presentation Rory provided for this episode
Grab-and-Go Resources:
New? Start here:
From the Archive:
- Ep 218: Rory Johnston, This War Changes Everything
- Ep 237: Art Berman, A World-Changing Event: We’re Not Going Back to January 2026
- Ep 227: Sal Mercogliano, It’s Not Just Hormuz: The Chokepoints Changing Global Shipping Forever
Episode Foundations:
- How China Saved the Global Oil Market by Rory
- Donald Trump’s Diesel Desperation by Rory
- Kpler explainer: How Mideast Gulf crude exports returned to pre-war levels
Next Steps:
- Watch The Untold Energy Story: What You Actually Need to Know About Oil
- Commodity Context by Rory
- EIA Gasoline and Diesel Fuel Update
Resources by Timestamp:
01:27 – Indy Johar (The Great Simplification Ep 238)
01:40 – Robin Wall Kimmerer (The Great Simplification Ep 239)
01:49 – More-than-human predicament
03:55 – 2026 Iran war
04:16 – Strait of Hormuz, 2026 Strait of Hormuz crisis
04:57 – Non-Iranian Gulf crude exports back at pre-war levels in September
05:00 – In-video insert: Hormuz Outbound Oil Flow (slide 1)
05:16 – Hormuz tanker attacks at their highest weekly level of the war
05:34 – Gulf-to-Asia tanker costs exceeded $37 per barrel by mid-October 2026
05:54 – War risk insurance, Dark transits
06:07 – Global oil inventory draws through September 2026
06:25 – Stocks and flows of oil: Reserves in the ground, Strategic Petroleum Reserve, Oil on water and on-land inventories in September 2026
07:17 – Middle East oil supply disruptions and inventory draws since the war began, Largest supply disruption in oil market history
07:31 – Expected 2026 oil surplus
08:10 – Oil’s bargain: Indistinguishable from magic (Nate and DJ’s book covering such)
08:33 – Iraq’s fast export recovery on deep discounts
09:06 – Iraq offered October-loading crude at discounts of up to $37 per barrel from Basrah
09:39 – Commodity traders’ war windfalls: Trafigura, Vitol, Glencore
10:18 – Ship-to-ship transfers off Fujairah and Sohar
11:05 – Hormuz shuttle tanker trade
12:21 – Diesel and gas shortages in Pakistan and India
12:40 – India’s limited strategic petroleum reserve, LPG cooking fuel shortfall
12:55 – ADNOC’s crude storage in India’s strategic reserves
13:26 – Middle East Gulf-to-China VLCC freight around $37 per barrel in October 2026 (The Great Simplification Ep on shipping chokepoints)
13:40 – Regional crude benchmarks
13:55 – Western Canadian Select and the Trans Mountain pipeline
14:25 – Regional dislocations: Heavy crude stranded in the Americas as freight costs rise, North Sea physical crude prices surging, West African discounts
14:54 – WTI, Dated Brent and the inclusion of WTI Midland in 2023
14:54 – In-video insert: Bloomberg: WTI Houston vs Dated Brent and Persian Gulf–Singapore VLCC Rate (slide 12)
15:56 – Record tanker rates balkanizing a once-global oil market
16:11 – Fractal complexity
16:38 – LNG flows through the Strait of Hormuz still well below pre-war
17:10 – Hormuz bypass pipelines: East-West Pipeline, ADCOP
17:29 – Gulf refined product exports still below half of pre-war levels
17:56 – *Iranian strikes on Ras Laffan knocked out 17% of Qatar’s LNG export capacity, with repairs expected to take three to five years
18:19 – Pre-war Hormuz flows: ~20% of world oil consumption, ~20 million b/d, including ~4.8 million b/d of refined products and LPG
19:34 – Nth-order effects of the Hormuz closure: Ammonia and fertilizer, Sulfur
20:13 – Headlines on Middle East oil flows back near pre-war levels
20:52 – CENTCOM-facilitated transits through Hormuz
21:50 – Rory’s March call for $200 oil (The Great Simplification appearance)
22:11 – New York Harbor diesel futures reached nearly $230 per barrel in September
22:39 – Demand destruction
22:54 – Emergency oil stock releases
23:14 – Middle distillates: Diesel, Jet fuel
23:28 – Tankers struck across the Persian Gulf in October
23:47 – Economic Superorganism, Rube Goldberg machine
24:13 – Rory’s three surprises: Beijing Swing, Pre-war outlook for surplus oil supply in 2026, Trump’s jawboning of oil prices
25:47 – Rory’s Beijing Swing estimate: China cut seaborne crude imports by ~5.4 million b/d, over 40%, as the rest of Asia recovered (EIA on China’s second-quarter import drop)
26:05 – In-video insert: Chinese Crude Import Collapse Enabled Other Asian Crude Import Recovery (slide 5)
27:16 – China’s refinery run cuts
27:21 – China’s fuel price caps: guided diesel up ~36% at its peak as global prices more than doubled, Record-low Chinese refining margins
28:10 – China’s pre-war crude stockpiling of ~550,000 b/d
28:35 – Rory’s hypothesis: undisclosed releases from China’s oil reserves
28:45 – China’s apparent oil demand falling at the fastest pace on record, compared with 2022 Zero-COVID lockdowns
29:31 – In-video insert: Chinese Apparent Diesel Demand vs Road Freight Turnover (slide 7)
29:34 – China’s apparent demand and missing official consumption data
29:48 – Rory’s estimate: China’s apparent diesel demand down ~20% as freight, ~70% of end use, kept growing
30:14 – LNG trucks and electric heavy trucks in China
31:16 – China’s 2008 construction-led stimulus, Chinese property sector crisis
31:47 – Trump’s renewed trade war with China, China’s export pivot to Asia and Europe
33:12 – U.S. Energy Information Administration discontinuing This Week in Petroleum
35:10 – Commodity Context on a 13.4 million barrel weekly draw in U.S. commercial petroleum stocks
36:15 – U.S. refineries running at unseasonably high rates amid soaring margins
37:18 – A very strong El Niño into 2027 (The Great Simplification Ep highlighting such)
37:35 – U.S. gasoline and diesel stocks below five-year averages, jet fuel above
38:01 – Higher jet fuel yields at U.S. refineries, Propane and other natural gas liquids
38:36 – U.S. light tight oil
39:15 – Attacks near Fujairah
39:35 – Fuel shortages in Sri Lanka and Indonesia
40:00 – Demand destruction falling hardest on the poorest (Frankly #133: Iran, U.S., and the Rest, March 27, 2026)
40:28 – Fuel rationing: Work-from-home orders, Odd-even driving rules
40:57 – LPG accounted for approximately 13.7% of India’s petroleum-product consumption by mass in 2025–26, Return to cooking with wood and coal, Household air pollution
41:37 – Naphtha and LPG losses across Asian petrochemicals
42:00 – Indian coal plants running critically low on stocks
42:58 – Crack spread
43:21 – In-video insert: Refined Product Price/Crack Spread Overview (slide 11)
43:43 – How refineries separate and convert crude oil into different products
44:54 – Distillation tower fractions
45:14 – Refining margins as weighted crack spreads
45:27 – In-video insert: Refined Product Price/Crack Spread Overview (slide 11)
45:37 – Record intraday New York Harbor diesel futures near $228 a barrel at the end of September, A diesel crack around five times its ~$20 norm
46:06 – In-video insert: Refined Product Price/Crack Spread Overview (slide 11)
47:27 – Diesel’s role in trucking, farming and heavy machinery
48:28 – Rory’s estimate: 1-1.5 million b/d of diesel exports lost from a roughly 30 million b/d global market
48:28 – In-video insert: Diesel Exports by Major Supplier Group (slide 9)
48:57 – 2026 U.S. midterm elections, Trump blaming the diesel crisis on Russia and Ukraine, Ukraine’s strikes on Russian refineries
50:22 – Very Large Crude Carriers of ~2 million barrels vs. smaller product tankers
50:51 – Iranian strikes on Gulf refineries in the UAE and Kuwait
51:10 – Houthis escalating attacks on Saudi Red Sea oil infrastructure
51:23 – Gulf and Russian diesel/gasoil net exports in August 2026 were 1.6 million b/d below February
51:31 – Russia, the world’s second-largest diesel exporter after the U.S.
51:45 – In-video insert: Russian Gasoil/Diesel Exports Collapse (slide 10)
52:02 – Ukraine says its strikes have knocked out over half of Russia’s refining capacity
52:21 – Russia’s fuel export bans, Russian diesel/gasoil exports of approximately 100,000–150,000 b/d in October 2026
52:41 – Rory’s former role leading commodity economics at Scotiabank on Bay Street
53:43 – Trump’s announced diesel deal with Putin
54:09 – Putin’s pledge of 500,000 tons of diesel for November, about 125,000 b/d
54:35 – U.S. sanctions on Russian diesel paused through April 7, 2027
55:26 – Midterm scenarios: Power of the purse, Constitutional crisis, Rally ’round the flag effect
56:31 – Iran’s crude supply down to ~2.2 million b/d by August, Crude exports of ~1.85-2.1 million b/d before the blockade
56:42 – In-video insert: Hormuz Outbound Oil Flow (slide 1)
57:05 – U.S. naval blockade of Iran
57:35 – “Siege chicken”: Game of chicken
57:56 – U.S. dollar as the world’s reserve currency
58:41 – Shut-in production, Reservoir damage risks
59:03 – Iraq’s crude oil production recovered to approximately 4.1 million b/d in September 2026
59:40 – Iran’s reported consumer-price inflation reached 89.8% year-on-year in September 2026
59:51 – Hyperinflation in the Weimar Republic
1:00:04 – Autarky and Comparative advantage
1:01:05 – U.S. retail diesel prices
1:01:27 – Economies less vulnerable to oil shocks than in the 1970s
1:01:36 – Concentration of S&P 500 gains in a narrow group of AI and tech stocks
1:02:14 – Wall Street on AI’s insatiable need for power
1:02:51 – Trillion-dollar AI investment boom
1:03:04 – Iraq’s fifth-largest proven oil reserves
1:03:29 – Iraq’s fuel-oil export route through Syria to the Mediterranean
1:04:00 – Iran-aligned Iraqi Shia militias
1:04:09 – September East-West Pipeline attack, blamed on Iraqi militias rather than the Houthis, launched from Iraq’s Maysan province
1:05:16 – A post-Carter Doctrine Middle East
1:05:38 – UAE joining strikes on Iran
1:07:09 – Bab-el-Mandeb and the Houthi maritime blockade of Saudi Arabia
1:07:39 – UAE hit by more Iranian strikes than the rest of the GCC combined, Drone strike on Dubai’s Fairmont The Palm hotel
1:08:25 – Military-industrial complex
1:09:10 – Where the spice flows: Dune (Frankly #61)
1:09:40 – Oil futures term structure
1:10:18 – Past deficits: 2008, Early 2010s, 2022
1:11:20 – Hedging into 2027 and 2028: Long-dated oil futures climbing as traders bet on elevated prices through 2028
1:11:31 – Brent rose from $71 per barrel on February 27 to a September average of $114, with a September 15 high of $131; U.S. retail diesel averaged $6.29 per gallon in September
1:11:41 – Baker Hughes North American rig count
1:12:17 – “Drill, baby, drill”
1:12:36 – U.S. on track for record crude oil production in 2026
1:12:50 – Dallas Fed survey: WTI prices producers report needing to profitably drill new wells
1:13:02 – OPEC+ cuts from 2022 and their 2025 unwind
1:13:39 – Non-OPEC supply growth, UAE’s exit from OPEC
1:14:24 – Spare capacity as OPEC’s currency, and past exits: Indonesia, Angola, Qatar
1:14:46 – Saudi Arabia’s shift from OPEC price dove to hawk under Mohammed bin Salman
1:15:13 – Evidence on Iraq’s fiscal squeeze
1:16:19 – Energy blindness
1:16:35 – U.S. oil frontiers: 1970 conventional peak, Alaska’s North Slope, Gulf of Mexico offshore, Shale oil
1:16:55 – Permian tight oil driving U.S. shale growth
1:18:12 – Biophysical gauntlet
1:19:50 – How credit markets finance AI and energy infrastructure
1:20:03 – Negative oil prices of April 2020 and a 2009 redux
1:21:14 – Monetary and digital claims on physical reality
1:21:55 – Christopher Columbus, East India Company
1:22:26 – Dark triad
1:23:04 – Rory’s Hormuz tracking: flows slowing as shipping attacks escalated
1:23:05 – In-video insert: Hormuz Outbound Oil Flow (slide 1)
1:23:55 – Tankers switching off AIS transponders to transit Hormuz unseen, How Kpler reconstructs dark transits
1:24:42 – Political confirmation bias and the IRGC
1:25:49 – In-video insert: Hormuz Outbound Oil Flow (slide 1)
1:25:51 – In-video insert: Hormuz/Gulf/Gulf of Oman Shipping Attacks (slide 2)
1:25:58 – In-video insert: Tracking Saudi Red Sea Oil Loadings and Exit Routes (slide 3)
1:27:15 – Iran’s attack spike after the UN General Assembly, the heaviest week of attacks of the war
1:27:15 – In-video insert: Hormuz/Gulf/Gulf of Oman Shipping Attacks (slide 2)
1:29:29 – U.S. military presence in the Middle East
1:29:58 – Reports and uncertainty surrounding Iranian payments for passage through Hormuz, discussed on Oil Ground Up with Kpler’s Michelle Brouhard
1:33:24 – Tank bottoms: why not every barrel in storage is accessible
1:35:03 – Finding trusted frameworks amid ultra-processed information
