by Meir Hasbani
March 5th, 2026
Crude prices jumped $7-10 this week with the closure of the Strait of Hormuz. This feels like a relatively muted reaction to 20% of the world’s crude supply being cut off from the market. It seems that most buyers are expecting the Strait to reopen before inventories get pinched too hard, or for the “shadow” fleet to move enough to keep the markets unplugged.
I was curious how much Persian Gulf Crude the US runs these days, and it’s not very much anymore. Back when the Iraq War started in 2003, we ran over 2 million barrels a day – 20% of the total US demand– but that’s way down now to 600 thousand or so.
Where we run that crude matters a bit more. You can see that California is still running 300 thousand barrels a day and hasn’t reduced its imports in step with the rest of the country. This makes sense – California is isolated from the shale boom in Texas, the refineries are not light sweet processors, and domestic supply on the West Coast from California and Alaska has plummeted. So as of 2024, around 30-40% of California crude comes through the Strait.
Source: Energy Information Administration
Will we see an outsized impact in California then? Digging deeper, we can see who’s running the barrels:
Source: Energy Information Administration
Of the remaining California refineries, only Marathon and Chevron run it. Marathon and Chevron’s LA refineries are pretty flexible, meaning they can substitute for other grades quite easily. Latin American and Canadian barrels can fill the gap in supply.
Chevron’s Bay Area refinery has a lubes plant – so they need crude grades that are compatible with lubricant manufacturing. This is a constraint – a lot of the available Canadian and Latin American substitutes don’t make good lubricant. So what happens from here?
First, the crude that’s running today, left the Middle East three weeks ago – that means there’s two weeks supply on the way. If the market is right about the Strait reopening, we’ll see supply set sail soon.
Second, we can expect Chevron and Marathon to prioritize current crude routings based on need, buy hard from alternative routes, and look for other options out of the Atlantic basin.
Third, we could see some creative moves – a waiver of the Jones Act to get product or crude to the West, or Chevron could pause lubes production, or the conflict could come to a quick end, or…. a myriad of other normally-off-the-table options which keep refineries running and stations pumping.
Regardless – I don’t see this as a major West Coast crude or product supply issue for now other than the fact that 20% of the world’s crude supply is out of the market. If we don’t see crude flowing in the next couple weeks, prices will then start to respond more aggressively.
So, I’m watching crude prices and product cracks, watching LNG prices (potentially even a bigger risk than crude to be honest), maybe buying some energy stocks, but I think regardless we’ll see the refineries in the West continuing to run smoothly.