Rory Johnston #1348

In this pivotal episode of Coffee and a Mike, host Michael engages in a deep-dive conversation with Rory Johnston, oil market researcher and founder of Commodity Context, about the unprecedented energy shock caused by the closure of the Strait of Hormuz due to the ongoing Iran war. Johnston describes the crisis as the largest singular energy shock in global history, with a sudden loss of 13 million barrels per day of oil supply—equivalent to the demand destruction seen during the peak of the COVID-19 pandemic. Despite rerouting efforts via the Saudi East-West Pipeline and other routes, physical scarcity is already hitting markets, particularly in Asia and Europe, with spot Brent prices soaring to $141.37—its highest since 2008. Johnston warns that financial markets remain sanguine, pricing in a quick resolution, while physical markets are in panic, with extreme backwardation in futures and a growing gap between financial and real-world prices. He stresses that the U.S. is not immune, despite its energy independence, due to global trade linkages and the fact that a global recession would inevitably impact even self-sufficient economies. The episode also explores geopolitical risks, including potential Houthi attacks on Red Sea shipping, Iran’s strategic use of the Strait as leverage, and the possible death of the Carter Doctrine, with long-term implications for global energy security. Johnston’s biggest fear is not just the immediate supply loss, but the possibility of permanent damage to oil infrastructure, which could lead to a decade-long supply deficit requiring $200+ oil prices and triggering a deep global recession. Key takeaways include: 1) The global oil system is already in crisis, with physical scarcity beginning to hit despite stable financial prices; 2) The U.S. cannot fully insulate itself from global energy shocks, even with domestic production; 3) Diesel and jet fuel are the real pain points, not gasoline, and will drive inflation in freight and air travel; 4) The market’s belief in a quick war end is dangerously optimistic; 5) Iran’s control of the Strait of Hormuz could become permanent, reshaping global energy geopolitics. The episode underscores that the worst is yet to come, and the window to avoid catastrophe is rapidly closing.