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Javier Blas on Lessons from Closing Hormuz (So Far)
Brief
Javier Blas and host Jason Bordoff examined why a prolonged closure of the Strait of Hormuz and a 10–15 million barrels per day disruption in supply did not produce the catastrophic oil‑price and economic shock many feared. Blas emphasized three categories of explanation: one‑off conditions (a pre‑existing oversupplied market and very high inventories), political/market psychology (frequent presidential “jawboning” about deals that altered trading risk appetite), and structural shifts (China’s dramatic reduction of seaborne crude imports and early effects of the energy transition). As of their July 28 recording Blas estimated only ~3 million b/d were transiting the Strait versus ~20 million b/d pre‑war; crude prices nevertheless sat in the mid‑$80s, a result Blas called “remarkable.”
They tracked the distributional and secondary effects: refining markets are strained (Blas said about 10% of global refining capacity offline and refining margins near ~$70/barrel vs. a historical comfort level around $35), so pump prices and jet fuel remain elevated even if crude falls. China’s choices — importing far less crude (from ~10–12 million seaborne b/d pre‑war to ~5.5–6 million in June–July) and leaning on coal and coal‑to‑chemicals — absorbed much of the pressure, but Blas stressed Chinese data opacity makes causation uncertain. He warned that coal demand looks set for a 2026 record (China’s coal‑to‑chemicals industry consumes ~400 Mt/year) and that petrochemicals are ~10–12% of oil demand. On gas, the U.S. benefits from low Henry Hub (<$3/MMBtu) while Europe pays far higher TTF levels, and Blas expects renewed LNG project push outside the Gulf — risking longer‑term overcapacity and lower future LNG prices. Bordoff and Blas agreed markets have shown resilience but cautioned this could be luck: infrastructure investments (bypass pipelines, refineries, SPR refills) and who pays for insurance will shape whether future chokepoint shocks are as muted. Uncertainties highlighted include the replicability of China’s behavior, the time needed to restore damaged refining capacity (notably in Russia), and the tradeoffs of financing resilience versus investing in clean energy.
Why it matters
Javier Blas: Five months into the Middle East conflict the Strait of Hormuz was largely closed at times, disrupting an estimated 10–15 million barrels per day of oil supply; Blas still counts the market as not in full crisis despite that disruption because Brent/traded oil has stayed in the mid‑$80s.
Key details
- Javier Blas (recording on July 28, 2026): Only about 3 million barrels per day were transiting the Strait that day versus roughly 20 million b/d pre‑war; roughly 10% of global refining capacity is offline, and global crude production losses still exceed 10 million b/d.
- Refining margins have surged: Blas said typical refining margins that executives would be happy with (~$35/barrel) have nearly doubled to about $70/barrel — the highest on record — driving retail gasoline/diesel pain even if crude prices fall.
- China materially reduced seaborne crude imports (roughly a 40–50% drop from pre‑war seaborne levels: pre‑war 10–12 million b/d to ~5.5–6 million b/d in June–July), a move Blas attributes to inventory accumulation/SPRs, demand shifts, and coal/coal‑to‑chemicals substitution — but Chinese data remain opaque.
- Coal and petrochemicals: Blas warned global coal consumption is headed to a new record in 2026 (power‑generation coal up), and China’s coal‑to‑chemicals sector consumes ~400 million tonnes/year; petrochemicals account for ~10–12% of global oil demand (larger than aviation).
- Natural gas divergence: Henry Hub prices in the U.S. were below $3/MMBtu while European TTF was around €56/MWh (~$19/MMBtu) — reflecting U.S. gas abundance, growing U.S. solar/battery margins, and uneven global LNG flows; Blas expects potential LNG overbuild outside the Middle East and possible sustained lower LNG prices later.