California on edge: Oil shock looms as Middle East supply crunch hits the US

Iran has blocked the Strait of Hormuz, slowing oil shipments from the Persian Gulf almost completely. Experts warn this could cause a big energy shock and hurt some parts of the U.S. economy soon. Analysts at JPMorgan Chase said the last oil deliveries from the Gulf to the U.S. may arrive by April 15 if the strait stays closed. They also said other global markets may face shortages even earlier.

Energy analyst Keland Rumsey said businesses that need constant fuel supply will see higher costs and price swings. He warned diesel and jet fuel prices may rise, increasing transport and operating costs. Rumsey added that the U.S. West Coast, especially California, is most at risk from the supply shock. Before the conflict, about 20% of global oil supply passed through the Strait of Hormuz as stated by Newsweek.

Oil shipments drop sharply

Shipments through the strait have now dropped by about 95% compared to before the conflict. The blockade has pushed oil prices and fuel pump costs higher. Experts fear this could also raise prices of chemicals, fertilizer and goods, leading to wider inflation. So far, price increases are mostly based on fears of shortages, not actual shortages yet. Experts say the impact will grow stronger when Middle Eastern oil stops fully.

Asia faces biggest impact

The U.S. imports around 650,000 barrels per day from the Persian Gulf. The U.S. uses more than 20 million barrels daily, so it is less dependent than some regions. Other regions will feel the supply shock more strongly. Around 84% of crude oil and 83% of LNG through the Strait went to Asia in 2024, as per EIA data via Newsweek. Rumsey said Asia is currently taking the biggest hit.

Countries like China, India, Japan and South Korea are most affected due to reliance on Middle Eastern crude. Middle Eastern producers are also under stress as exports stop and storage fills. Christopher Haines said import-dependent countries in Asia and Africa are already feeling pressure. Nations like Philippines, Thailand and Vietnam have taken steps like suspending fuel exports.

California supply risk grows

Haines warned longer shipping disruptions will push prices higher to reduce demand. He added that transportation costs for goods will increase. California depends heavily on Middle Eastern oil imports. Around 29% of California’s crude imports come from the Middle East. Supply risks are worse because local refineries are shutting down, as noted by Newsweek. The Phillips 66 Los Angeles Refinery has closed. Valero Benicia Refinery is also planned to shut down this month.

What could happen next

Economist Paul Krugman said deliveries to Asia will end first, then Europe next week. He said once oil physically runs out, talk alone cannot calm markets. He also mentioned Donald Trump had earlier talked prices down by suggesting negotiations with Iran. Rumsey said markets may shift to stable supply sources like the U.S., Canada and Atlantic Basin. Buyers may increase purchases of U.S. crude and move away from Hormuz-dependent routes.

The U.S. may increase production slightly, led by the Permian Basin. Still, the U.S. cannot fully replace Middle Eastern oil volumes. Oil prices briefly dipped after Trump said U.S. military action in Iran may end in two to three weeks, as noted by Newsweek. Iran said it will reopen the Strait only for countries that follow its new rules. Even if reopened, flows will not return to normal immediately. Different shipping companies and buyers will move slowly due to safety concerns.

Rumsey said some shipments could resume in days if risk is manageable. But full normal supply may take weeks or months. Insurers, ship owners, ports and refineries all need confidence before returning fully. Overall, experts warn California could face higher fuel prices and economic pressure if disruption continues.

FAQs

Q1. Why is California at risk from the oil supply crunch?

California depends on Middle East oil, and refinery shutdowns plus the Strait of Hormuz disruption could raise fuel costs and cause shortages.

Q2. Will the U.S. face a major fuel shortage soon?

Experts say the U.S. may avoid severe shortages, but prices could rise and regions like California may feel stronger economic pressure.