Rory Johnston on What’s Happening in the Oil Markets

ELI5/TLDR

The Strait of Hormuz — the narrow waterway through which 20% of the world’s oil flows — has been shut down by the Iran war, creating the largest oil supply shock in history. About 13 million barrels a day of production are gone, there is no combination of alternative sources that can replace it, and the only way to balance the market is for prices to rise high enough that people stop buying. Brent crude sits at $109 but could reach $200+. Rich countries will feel it in their wallets; poorer countries may face actual fuel shortages that threaten lives.

The Full Story

The Man Who Doesn’t Panic Is Panicking

Rory Johnston runs Commodity Context, a well-known oil analysis newsletter, and has a reputation in the market as a mild bear — someone who generally assumes the oil system will adapt to whatever gets thrown at it. He has watched the market shrug off attacks on Saudi Aramco facilities in 2019, COVID, the Russia-Ukraine invasion, Houthi attacks in the Red Sea, and the 12-day Israel-Iran war. Each time, oil proved resilient.

This time is different. Not in degree. In kind.

“It is now the largest oil supply shock in history.”

The Strait of Hormuz normally carries about 20 million barrels per day — roughly a fifth of global supply. Some of that can be rerouted through pipelines: a Saudi east-west pipeline, an Emirati pipeline, a couple of Iraqi lines. Iran itself is still exporting (the US even lifted sanctions on Iranian crude to help). But after every workaround is maxed out, the hole is still around 13 million barrels a day. That is 13% of global supply, and nothing on earth can fill it quickly. Between Iraq, Kuwait, Saudi Arabia, the Emirates, and Qatar, 11 to 13 million barrels per day of production are confirmed shut in. Not sitting in storage somewhere. Just not produced. Gone.

The math that follows is simple and grim: if you cannot add supply, you must subtract demand. The only tool for that is price. Prices rise until enough people can no longer afford to buy.

Why Oil Isn’t Higher Yet (And Why That’s Worrying)

At the time of recording (April 2, 2026), Brent was around $109. Johnston expected $125-135 by now and finds the relatively muted response baffling. So does every oil analyst he talks to.

Two forces are holding prices down. First, before the crisis, the market was in structural oversupply — lots of inventory, bearish outlook, falling prices expected. Many traders still believe this is the baseline they will snap back to, so they treat every dip as the beginning of the return to normal. Second, the Trump administration has said every single week that the war is about to end. Each time, oil sells off.

“Everyone in the market just wants this to be over.”

There is a gap, though, between what the futures market says and what the physical market shows. Spot prices for Middle Eastern crude grades have traded at $140-150 a barrel. Singapore refined products are above $250. California diesel has hit $7 a gallon. The physical market is screaming. The paper market has not caught up, because it is still pricing in a swift de-escalation that keeps not arriving.

The Air Pocket

Johnston uses a vivid image. Five weeks ago, tankers were still leaving the Gulf loaded with oil. Those ships take three to six weeks to reach their destinations. Some still have not arrived. When the last pre-war tanker docks and nothing follows behind it, there will be an “air pocket” — a void moving outward from the Middle East like a shockwave.

It hit East Africa first. Then India. East Asia was feeling it the week of the interview. Europe was next. North America, the week after that.

“Eventually that final tanker will arrive and nothing will be behind it but air.”

Asian governments are already in what Johnston describes as full-blown panic, rolling out rationing language, telling citizens to prepare. In Canada, where he lives, most people on the street have no idea what is happening. They have noticed higher pump prices. They have not connected the dots.

The Numbers Are Staggering

The world has already hemorrhaged over 200 million barrels of lost production — barrels that were never pumped, not barrels sitting on a ship somewhere. Even if the war ended today and every well restarted immediately, that quarter-billion-barrel deficit would still drain from global inventory.

April alone, with the strait closed for the full month, would see roughly 400 million barrels of lost production. For scale: 400 million barrels is the entire size of the IEA’s record-setting coordinated strategic petroleum reserve release — the biggest emergency drawdown ever attempted. One month of this crisis matches it.

And restarting is not instant. Kuwait’s petroleum corporation CEO has said it will take three to four months to reach full production after the strait reopens. The recovery period at least doubles the effective loss.

“We only have time for one largest supply disruption in history. Having two is — I can’t keep track of them all.”

That dry line refers to the fact that Ukraine, keenly aware that Russia is the war’s biggest financial winner, has been attacking Russian export infrastructure with unprecedented intensity. Reuters reported 40% of Russian oil export capacity was knocked offline at one point — the largest disruption to Russia’s energy sector since the fall of the Soviet Union. So we have two simultaneous “largest-ever” disruptions. Johnston’s deadpan delivery does not quite hide how unusual he finds this.

Winners, Losers, and the 1970s Remix

Biggest losers: Gulf exporting nations whose economies have effectively imploded. Then Asian importers, especially India, where LPG — a core cooking fuel for hundreds of millions — is under direct threat. Without it, households fall back on burning biomass. This is not a market inconvenience. It is a humanitarian crisis. Then Europe.

Biggest winner: Moscow. Before the war, Trump’s sanctions had successfully squeezed Russian oil exports — Indian imports of Russian crude dropped from over 2 million barrels/day to about 1 million. The Hormuz closure reversed that overnight. Indian refineries jumped back in to buy Russian crude, and the US Treasury actually removed sanctions on Russian floating storage to help Asian buyers access it. Russia went from being cornered to being the indispensable alternative supplier.

North America is the most insulated, thanks to the shale revolution and Canadian oil sands. Most of those barrels are landlocked into the US Midwest with no practical way for Asian buyers to bid them away. The midcontinent will likely see the cheapest fuel prices in the world. But Johnston pushes back firmly on the idea that this is a net benefit for the US — the gains flow to producing companies and states, while most Americans are consumers, not producers. And North America cannot escape a global recession.

The 1970s parallel is instructive but imperfect. The 1973 Arab oil embargo was smaller in scale, and much of the pain came from Nixon’s price caps causing physical shortages and gas lines. Today’s supply loss is actually larger. The saving grace is that oil intensity — how much oil it takes to produce a dollar of GDP — is far lower now in Western economies, partly because of efficiency drives sparked by that very crisis.

The Russia-Ukraine comparison (2022) is almost the opposite of today. That was a crisis of fear: the market worried about losing 3 million barrels/day of Russian supply, but ultimately lost only about 1 million for a couple months, and China’s COVID lockdowns killed enough demand to compensate. This time, the actual loss dwarfs the fear. The market is, if anything, not scared enough.

What Happens After

Even after the strait reopens, it takes three to six weeks just to refill the “pipeline on water” — the tankers in transit that keep the system flowing. Then months to restart Gulf production. Then a long period of rebuilding strategic reserves, which countries will almost certainly build larger than before. Asia in particular will pursue both diversification of supply (more from the Americas — US, Canada, Guyana, Brazil, Argentina) and accelerated energy transition. Countries that were wary of Chinese EVs flooding their markets may now welcome them as the lesser vulnerability.

OPEC is in a uniquely helpless position. Its main lever is production adjustments, but almost all the countries with spare capacity are on the wrong side of Hormuz. The cartel was already losing ground to non-OPEC supply growth before this; the crisis will accelerate that shift. Johnston draws the parallel to the post-1970s era, when the North Sea boomed, non-OPEC supply surged, and Saudi Arabia eventually found itself producing less oil than the British portion of the North Sea alone.

Trump’s April 1 speech said two to three more weeks — after already saying that for four weeks. He also indicated the US would leave the job of reopening Hormuz to Europe and Asia, since America does not import much Middle Eastern oil. This effectively cedes near-term control of the strait to Iran.

“This may just be the first closure of the Strait of Hormuz we have to deal with.”

What to Watch

Johnston says the best signal that the crisis is ending will not be the headline oil price. It will be the shape of the futures curve. Right now the curve is in steep backwardation — spot prices far above future prices, the market screaming for oil right now at any cost. When backwardation flattens and the curve starts tipping toward contango (future prices above spot), that means supply is finally catching up to demand. That is when the healing begins.

Claude’s Take

Johnston is one of the more credible voices in oil market analysis, and this interview has the feel of someone trying very hard to communicate urgency without tipping into alarmism — and repeatedly noting that his past sin has been underestimating how bad things would get, not overstating them. His track record of being a market bear who has been forced into a bullish posture by events lends him credibility here.

The core factual claims — 20 million barrels/day through Hormuz, the rerouting capacity, the shut-in production figures — are consistent with widely reported data. The $200 Brent target is not a fringe call; several major banks and analysts have floated similar numbers for a sustained closure scenario. Where Johnston is most persuasive is on the mismatch between paper and physical markets. The futures market pricing in a quick resolution while physical spot markets are trading at wild premiums is a well-documented phenomenon in this crisis, and his explanation of why (confirmation bias, Trump’s repeated “almost over” signals) is straightforward and plausible.

The weakest part of the analysis is the timeline uncertainty, which Johnston himself acknowledges repeatedly. He has been wrong about how long this would last and how quickly markets would react. The possibility that this resolves faster than expected — through a diplomatic deal, a change in Iranian posture, or military action — is real, and the market’s relative calm may partly reflect information or probabilities that commodity analysts do not have access to.

The humanitarian angle on Indian LPG is well-placed and important. It is easy to discuss oil shocks as an abstraction about portfolio allocation. For hundreds of millions of people, this is about whether they can cook food.

One thing worth noting: the interview was conducted for an Indian audience (Zerodha is a major Indian brokerage), so the India-specific framing is natural but also means some global dimensions get lighter treatment. The interviewer is young and asks genuinely good questions for the audience, and Johnston clearly respects the format enough to give substantive answers rather than sound bites.