MacroVoices #539 Rory Johnston: Hormuz Crisis, is it Really Over?

In this MacroVoices episode from July 2, 2026, Rory Johnston of Commodity Context explains the surprising developments in the Hormuz crisis. Initially, experts predicted $200 oil if the strait remained closed through June, but this proved incorrect due to two major factors: China cutting crude imports by 5 million barrels per day (far exceeding expectations) and strategic petroleum reserves being deployed globally. Johnston reveals that flows out of Hormuz have actually surged to 130% of pre-war levels through combinations of direct transits and alternative routes (Yanbu, Fujairah), but much of this supply surge is being artificially boosted by drawdowns of stranded floating crude that cannot be sustained beyond a few weeks. The critical bottleneck is that fresh loadings from production restarts are only 5-6 million barrels per day while exits are 12 million barrels per day, indicating upstream production recovery is lagging expectations. Interestingly, inbound empty tankers (ballast tankers) have returned faster than anticipated, suggesting the constraint is on production capacity, not logistical ability to evacuate crude. Johnston emphasizes that the geopolitical situation remains unstable, with Iran demonstrating it can close Hormuz but struggling to enforce toll collection or control shipping routes effectively. The U.S. and Iran pursue mutually exclusive objectives regarding Hormuz management, creating a fragile ceasefire where both sides avoid full escalation but Iran cannot enforce its claimed control as ships transit southern and center routes outside Iranian oversight. The petroleum market has split into two distinct stories: crude oil faces unprecedented weakness with prompt contango spreads (indicating oversupply), while refined product crack spreads have hit multi-year highs at 60 dollars per barrel for diesel and 50 for gasoline, suggesting refining bottlenecks are the real constraint. This occurs because Middle Eastern refining capacity remains damaged and Russian refined product exports have collapsed due to Ukrainian attacks, while crude output from all sources has surged. The market is currently in temporary surplus of crude but deficit in finished products, creating a situation where oil sits in tankers at sea or in floating storage while refineries cannot process it all. Johnston argues that China's withdrawal from the market appears to be a policy choice rather than demand destruction, as domestic Chinese fuel prices only rose 30% versus doubling elsewhere, and mobility indicators show no real disruption. Regarding SPR capacity, Johnston indicates the U.S. SPR at 330 million barrels could sustain current drawdown rates for months longer, and salt cavern design allows drawdown to near-complete depletion unlike tank storage. Looking forward, Johnston expects crude prices to remain supported by elevated short positioning near all-time levels, but contango spreads and near-term supply glut should provide downside protection in the $70 range. The optimistic scenario assumes China re-enters the market and Middle Eastern refineries recover within high weeks to low months, though Saudi Arabia's surprisingly slow loading restart raises questions about whether discretionary supply management is occurring. If the ceasefire breaks down, Iran would likely first attempt harder enforcement of Hormuz closure before escalating to broader infrastructure attacks like hitting Saudi pipelines or closing Bab al-Mandeb, a scenario Johnston assesses as lower probability given Iran's demonstrated preference to avoid full re-escalation.