California Faces Highest US Oil Risk Amid Supply Cuts

Strait of Hormuz Blockade Intensifies Concerns

Analysts are warning that the final shipments of oil from the Middle East may soon reach the U.S., intensifying the economic impact of Iran’s blockade of the Hormuz Strait. Experts predict this resulting energy shock could spark an acute economic crisis in specific U.S. regions.

Imminent Supply Halt

According to reports, the last oil shipments from the Gulf are expected to arrive on April 15th, assuming the Strait of Hormuz remains closed. Other global markets face an even shorter timeframe to secure alternative supplies or experience the consequences.

Impact on U.S. Businesses

U.S. businesses relying on a “continuous fuel supply” are anticipated to encounter “higher costs and price volatility,” particularly for diesel and jet fuel. This will likely lead to increased transportation and operating expenses for logistics-heavy industries.

West Coast Vulnerability

Given its dependence on Middle Eastern imports and recent refinery closures, the West Coast, especially California, is considered particularly vulnerable. Prior to the recent conflict, approximately 20 percent of the global oil supply transited through the Strait of Hormuz.

Decline in Transits

A recent report from Clarksons Research indicates a 95 percent decline in transits through the Strait compared to pre-conflict levels. While much of the current price pressure is speculative, driven by expectations of shortages, actual supply gaps are looming.

Regional Reliance on Persian Gulf Oil

While the U.S. is relatively less reliant on Persian Gulf oil compared to other regions – sourcing around 650,000 barrels per day according to JP Morgan – other markets will feel a more pronounced effect when Middle Eastern supplies effectively halt. The U.S. Energy Information Administration data shows over 20 million barrels of daily demand.

Asia and Africa Most Affected

Approximately 84 percent of crude oil and 83 percent of liquefied natural gas passing through the Hormuz Strait in 2024 went to Asian markets. Christopher Haines, global head of oil at Energy Aspects, notes that import-reliant countries in Asia and Africa, including the Philippines, are already experiencing the impact.

California's Unique Challenges

Disruptions to oil supply could be particularly acute for California, given potential threats to its domestic sources, such as refinery closures. 2025 data from the California Energy Commission highlights the state’s vulnerability.

Price as a Solution

“The longer shipping disruptions persist, the way to solve the huge loss in supply will be by higher prices to curb demand,” stated an industry expert. Economist Paul Krugman commented, “Once the crisis gets physical, there will no longer be room for jawboning the markets.”

Long-Term Market Shifts

Oil markets are expected to increasingly favor reliable, geopolitically stable supply sources, currently placing a premium on barrels from the U.S., Canada, and the Atlantic Basin. This could drive longer-term diversification, with buyers securing more U.S. crude and shifting trade flows.

Iran's Conditions for Reopening

Iran has indicated it will only reopen the Strait of Hormuz to nations “who comply with the new laws of Iran.” Experts caution that even if the waterway reopens, it will take time for flows to “normalize,” as various stakeholders assess risk tolerance.

Return to Normalcy

While some flows could resume within days if the waterway physically reopens, a full return to normal operations typically takes weeks to months, requiring confidence from insurers, naval escorts, charterers, terminals, and refineries that the route is durable and safe.