Rory Johnston on How Oil Could Surge to Over $200 a Barrel

What It Covers

Rory Johnston, founder of Commodity Context, analyzes the Strait of Hormuz closure triggered by US-Israel strikes on Iran, explaining why oil prices could exceed $200 per barrel, how refined product markets are already breaking down, and why standard market buffers cannot offset a 20-million-barrel-per-day supply disruption.

Key Questions Answered

• •Strait of Hormuz scale: The 20 million barrels per day flowing through Hormuz equals the peak demand destruction seen during COVID-19 lockdowns in March-April 2020, when airports were empty and planes grounded. Unlike COVID, this supply loss cannot be absorbed gradually — prices must rise until demand is forcibly eliminated through price signals alone, not behavioral change.
• •Refinery run-rate strategy: Asian refiners are preemptively cutting production rates rather than running at full capacity to capture high margins. Shutting down a refinery — essentially a continuous chemical process — is catastrophic and takes months to restart. By reducing throughput now, refiners extend their remaining crude inventory runway, which explains why Asian jet fuel briefly exceeded $200 per barrel before crude fully repriced.
• •Supply loss compounding daily: Iraq alone has shut in over 3 million barrels per day from its southern Basra fields due to lack of domestic storage — equivalent to the entire feared Russian supply loss in 2022 that pushed Brent above $120. Kuwait faces the same constraint. Even if the strait reopened tomorrow, a 200-million-barrel air gap already exists in global petroleum flows, requiring two to three months minimum to normalize.
• •Export ban risks domestic shortages: Banning US crude and refined product exports would initially lower pump prices but would rapidly overflow Gulf Coast diesel storage, forcing refinery shutdowns. Combined with Jones Act restrictions limiting inter-regional fuel transfers, the policy could convert a price problem into an outright physical shortage — the opposite of the intended outcome, mirroring Nixon-era 1970s oil shock mismanagement.
• •Russia as swing producer: The Hormuz closure has reversed pressure on Russian oil exports. Indian imports of Russian crude had dropped from over 2 million to roughly 1 million barrels per day under Trump-era sanctions and tariffs. Now India has received explicit sanctions waivers to resume Russian purchases, and European nations are reconsidering Druzhba pipeline sanctions — making Russia the primary beneficiary of a conflict initiated by its adversaries.