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On this page

1. Executive Summary

  • 1. Executive Summary
  • 2. Chronological Table of Contents
  • 3. Detailed Thematic Summary
  • The Reference Vault
  • 4. Data & Figures
  • 5. Core Frameworks & Mental Models
  • 6. Memorable Anecdotes
  • 7. References & Recommendations
  • 8. Actionable Next Steps

On this page

  • 1. Executive Summary
  • 2. Chronological Table of Contents
  • 3. Detailed Thematic Summary
  • The Reference Vault
  • 4. Data & Figures
  • 5. Core Frameworks & Mental Models
  • 6. Memorable Anecdotes
  • 7. References & Recommendations
  • 8. Actionable Next Steps
Middle East/March 18, 2026/8 min read/youtu.be

Oil Researcher Rory Johnston Explains the Market | Know Your Risk

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  • "we've already seen around 8 and a half million barrels a day of production shut in on those producers already that's not... what's exports have been lost that's actual shut in the ground" - Rory Johnston [00:10:03]

  • "if you turn them off everything kind of solidifies in the pipes and like that's not great so you want to be able to get these things operating" - Rory Johnston [00:13:04]

References

  1. Original source (youtu.be)

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Published
March 18, 2026
Read time
8 min read
Progress0%
  • "we all live in wealthy advanced countries we are going to experience this if the straight remains closed we're going to experience this as debilitating price shocks... the rest of the world will experience this not as price shocks but by outright physical shortages which will turn deadly in many areas" - Rory Johnston [00:22:04]

  • "the physical market is basically going to force you know that mechanism to kind of you know the forking mechanism like push prices up in order to kind of balance that" - Rory Johnston [00:12:36]

  • "if I was in their position that's how I would do this as well i would basically just strangle the global economy and say 'Leave us alone.' And I'm going to keep strangling until you leave us alone" - Rory Johnston [00:40:31]

  • "the single greatest beneficiary of this war to date has been Moscow... Russia at this stage is a more reliable supplier than anyone in the Gulf and that's kind of not a great situation to be in" - Rory Johnston [00:48:36]


  • 1. Executive Summary

    • The global oil market is currently facing an unprecedented physical supply shock driven by the closure of the Strait of Hormuz and massive proactive production shut-ins across the Middle East.
    • A dangerous psychological divergence has emerged between the paper markets and the physical markets; traders are irrationally suppressing crude futures based on the assumption that politicians will back down (a "taco"), while physical spot prices are exploding.
    • Global consequences will be strictly bifurcated based on wealth: advanced economies will endure debilitating, inflationary price shocks, while poorer nations will be subjected to outright physical shortages of energy that could turn deadly.
    • Ironically, US policy responses aimed at buffering the supply shock—such as waiving sanctions on Russian crude—have inadvertently positioned Moscow as the most reliable energy supplier and the primary beneficiary of the ongoing crisis.

    2. Chronological Table of Contents

    • Rory Johnston's Background & The Genesis of Commodity Context [00:00:46]
    • The Psychological Disconnect: Paper vs. Physical Markets [00:04:43]
    • Unprecedented Production Shut-Ins in the Middle East [00:09:20]
    • The Refined Products Crisis (Jet Fuel, Diesel, and Fuel Oil) [00:11:46]
    • Rumors of Market Intervention & The Strategic Petroleum Reserve [00:14:48]
    • Unintended Consequences of Export Restrictions [00:18:36]
    • Escalation Risks: The East-West Pipeline & Houthi Dynamics [00:27:00]
    • Geopolitical Leverage & The $200 Oil Threat [00:37:43]
    • The Oil Curve, Sanctions Waivers, and The Russia Paradox [00:46:09]

    3. Detailed Thematic Summary

    The Paper Market Delusion & Spot Market Reality [00:05:44]

    • The "Taco" Sentiment: The broader financial market is irrationally discounting the ongoing Middle East conflict. Traders hold a deeply ingrained belief that the US administration will simply back out ("taco") at any moment [00:26:06]. This psychological phenomenon triggered a massive $35/barrel intraday plunge on a mere rumor that the war was ending [00:07:54].
    • Physical Dislocation: While the paper market keeps Brent crude depressed around $100/barrel [00:05:44], the actual physical spot market has broken completely. Asian importers are paying a staggering $152/barrel for cash Dubai crude [00:24:23]. They are paying this extreme premium because a cheap barrel of WTI is useless if it cannot physically be delivered to Fujairah today.

    The True Scale of the Physical Supply Shock [00:09:04]

    • Massive Proactive Shut-Ins: The market isn't just dealing with blocked ships; it is dealing with plugged wells. Roughly 8.5 million barrels/day of production have been completely shut in across Iraq, Kuwait, Saudi Arabia, and the UAE [00:10:03]. This is almost three times the volume of oil the market panicked over losing from Russia in 2022 [00:10:17].
    • The East-West Pipeline Dependency: With the Strait of Hormuz blocked (which typically moves ~20 million barrels/day), the entire global supply chain hinges on the Saudi East-West pipeline. The pipeline has a nameplate capacity of 5 million barrels/day and can allegedly be flexed to 7 million barrels/day [00:27:46].
    • Refinery Survival Tactics: Rather than shutting down entirely, global refineries are slashing runs from 90% capacity to 65% capacity to extend their crude runways [00:13:08]. Shutting down these "hot chemistry sets" completely would cause the hydrocarbons to solidify in the pipes, creating a logistical nightmare [00:13:04].

    The Refined Products Crisis & Global Inequity [00:11:46]

    • The Premium on Refined Chemistry: End-users do not consume crude; they consume refined products. Because of the refinery run cuts, Asian jet fuel has skyrocketed to over $200/barrel, entirely detached from the underlying crude price [00:12:06]. Even Heavy Sulfur Fuel Oil (HSFO), the sludgy byproduct normally cheaper than crude, is now trading at a premium due to acute shipping deficits [00:14:18].
    • The Bifurcation of Suffering: Wealthy, advanced nations will suffer this crisis as "debilitating price shocks," pushing past $4-$5/gallon for gasoline, but they will still secure supply due to low price sensitivity [00:22:04]. In stark contrast, poorer nations will experience direct, and potentially fatal, physical shortages of energy.

    Geopolitical Repercussions & The Russia Paradox [00:37:43]

    • Iran's Ultimate Leverage: Iran has engineered the current crisis meticulously, explicitly aiming to target the Strait of Hormuz and publicly stating they intend to drive oil to $200/barrel [00:41:31]. Their endgame is regime survival, effectively strangling the global economy until foreign adversaries back down.
    • The Unwinding of Sanctions: In a desperate bid to replace the lost Middle Eastern supply, OFAC (the US Treasury's sanctions arm) waived restrictions on Russian crude loaded prior to March 12th [00:48:10].
    • Moscow's Windfall: By undoing years of carefully tightened sanctions in just two weeks, the US has effectively made Moscow the most reliable energy supplier on earth. Russian Urals crude landed in India traded at a premium to Brent for the first time in recorded history [00:48:59].

    The Reference Vault


    4. Data & Figures

    Data PointValueContextTimestamp
    Brent Crude Price~$100/barrelThe artificially depressed paper market price despite war conditions[00:05:44]
    Intraday Flash Crash$35/barrelOil crashed intraday purely on a psychological rumor of Trump backing out[00:07:54]
    Shut-in Production8.5M barrels/dayOil production physically stopped across Iraq, Kuwait, Saudi Arabia, and the UAE[00:10:03]
    Asian Jet Fuel Price>$200/barrelDetached entirely from crude due to an acute refined product shortage[00:12:06]

    5. Core Frameworks & Mental Models

    • The "Air Pocket" Lag Effect: The physical realization of maritime supply chain disruptions operates on a 3-5 week lag because heavily laden tankers are already on the water. The true market impact (the "air pocket") only initiates when ships fail to arrive at destination ports like Singapore or Fujairah, triggering violent inventory draws. [00:12:17]
    • Sentiment Suppression vs. Physical Reconciliation: Traders price commodity futures heavily on the expectation of political resolutions (e.g., waiting for politicians to fold or "taco"). This sentiment suppresses the paper market artificially until the physical spot market overrides it by forcing prices up through sheer inventory depletion. [00:26:06]
    • Price Shocks vs. Physical Shortages: A macro-economic framework dividing the global impact of an energy crisis. Wealthy, advanced nations will suffer "debilitating price shocks" because they have the capital to outbid others. Developing nations, lacking that capital, will be priced out entirely, resulting in "physical shortages." [00:22:04]

    6. Memorable Anecdotes

    • The 30-Minute Market Collapse: Johnston illustrates how dangerously detached the paper market's sentiment is from reality by recalling being on a podcast and watching oil plummet $10-$15 a barrel in just 30 minutes. It eventually dropped $35 intraday, driven entirely by a passing comment from Trump suggesting the war was over, despite the Strait remaining firmly closed. [00:07:21]
    • The Greatest Irony of the Conflict: The Trump administration had successfully and painstakingly tightened sanctions on Russian crude. However, within two weeks of the Middle East crisis erupting, OFAC completely reversed course out of desperation, waiving sanctions on oil loaded before March 12th. Suddenly, global buyers were tripping over themselves to buy Russian Urals from the shadow fleet, handing Moscow the ultimate geopolitical victory. [00:48:10]

    7. References & Recommendations

    • Individuals/Entities Mentioned: Rory Johnston (Commodity Context), Chase Taylor, Zach Abraham, OFAC (Office of Foreign Assets Control), EIA (Energy Information Administration), IEA.
    • Geopolitical Events: The 2022 Russia-Ukraine Invasion, the 2019 Abqaiq processing facility attack, the Houthi Red Sea blockade, Trump Administration, Biden Administration SPR policies.
    • Publications & Tools: CommodityContext.com, Substack, OddLots podcast, Doomberg.

    8. Actionable Next Steps

    1. Model Extreme Product Inflation: Given the massive localized deficit in Asian spot markets and global refinery run cuts from 90% to 65%, immediately adjust supply chain inflation models to reflect exponential spikes in diesel and jet fuel rather than broad crude indices.
    2. Monitor Red Sea Transponder Data: Track AIS shipping transponder data departing the Saudi industrial port of Yanbu on the Red Sea. The entire global market depends on Aramco proving its claim that it can flex the East-West pipeline to move 5M-7M barrels/day around the blockade.
    3. Stress-Test Domestic Supply Chains for Export Bans: Given the US historically exported 4-6M barrels/day of light-sweet crude, model the severe bottleneck effects, tank overflows, and forced operational run cuts that would strike US Gulf Coast producers if emergency export restrictions are enacted.

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    Refinery Run Cuts
    90% to 65%
    The operational reduction taken by refineries to stretch dwindling crude inventory
    [00:13:08]
    Cash Dubai Crude$152/barrelThe hyper-inflated physical spot price Asian importers are paying to secure actual supply[00:24:23]
    Strait of Hormuz Flow~20M barrels/dayThe historical volume of oil (roughly 60 tankers/day) blocked at the strait[00:09:04]
    East-West Pipeline5M - 7M barrels/dayCrucial backup infrastructure in Saudi Arabia used to bypass the blocked Strait[00:27:46]
    US Crude Exports4M - 6M barrels/dayThe immense volume that would be trapped onshore if an export ban were enacted[00:19:34]
    Iran's Target Price$200/barrelThe openly stated target price Iran intends to weaponize against the market[00:41:31]