The Strait of Hormuz Crisis: Short-term Shocks and Long-term Adjustments

The 2026 Strait of Hormuz crisis represents the most severe energy supply disruption since the 1970s oil crisis. Around 20 million barrels of crude oil per day (~20% of global oil consumption), or about one-fifth of the world's oil supply, would almost completely halt flow through the strait. Brent prices surged above $110/barrel, but amidst the short-term panic, there are structural reasons suggesting this. The world will gradually adjust over time. If market players can weather the short-term crisis,

1. Hormuz-side infrastructure: Superior to all other available options.

The Strait of Hormuz is not just a "passageway," but... Infrastructure Ecosystem Built over several decades, this includes deep-sea ports, refineries, oil storage facilities, pipeline systems, LNG transshipment terminals, and Dubai's Jebel Ali port, a regional transshipment hub.

Things that make hormone replacement difficult:

• Proximity to Asian markets: Approximately 84% of crude oil passing through Hormuz is destined for Asia, with China, India, Japan, and South Korea collectively receiving 69%.
• Enormous quantity: ~20 million barrels/day (crude oil ~15 million + petroleum products ~5.5 million), including ~20% of global LNG trade.
• Types of oil: Gulf oil is a medium-to-heavy sour crude, a key specification that Asian refineries are specifically designed to handle with their infrastructure (details in Section 2).

2. Why “changing sources” isn’t as easy as you think.

Crude oil is not a uniform commodity; each source has different chemical properties that determine which refineries can process it and what products will be produced. Two key properties are:

• Density (API Gravity): API oil grades are measured in degrees. The higher the number, the lighter the oil – it flows easily, is easy to refine, and yields more gasoline and diesel. A lower number means heavier oil – thick like syrup and requiring additional processing units to crack large molecules into smaller ones.
• Sulfur content: Less than 0.5% = Sweet (Easy to distill, no large sulfur removal unit required) More than 0.5-1% = Sour (Requires a Hydrotreater and Sulfur Recovery Unit; otherwise, it will corrode equipment and the product will not meet standards)

            2.1 Types of crude oil and restrictions.

• Gulf (oil from the Strait of Hormuz) is a medium-to-heavy sour oil.
• United States (13.58 million bpd): It's the world's largest producer, but most of it is Light Sweet Crude, and Asian refineries designed to process Gulf Sour will underperform when refining WTI.
• Russia (9.1 million bpd): Urals crude is a medium sour, closest to Gulf crude. China and India accept Urals well, but face limitations in terms of sanctions and logistics.
• Brazil Pre-salt: Medium Sweet carbon is acceptable for Asian refineries, but its low sulfur content means they underutilize their desulfurization units.
• West Africa (Nigeria, Angola): It's a Light Sweet, with characteristics far removed from a Gulf Sour.
• Canada/Mexico (WCS, Maya): Heavy sour products are most readily available at Asian refineries, but they are far away, resulting in high transportation costs and limited capacity.

From the information above, it can be seen that most Gulf oil is medium-to-heavy sour, while the main alternative sources are light sweet or medium sweet, which have completely different properties. Furthermore, there are limitations in terms of spare capacity and rising transportation costs.

            2.2 Refinery capacity

A refinery's capacity is measured by the Nelson Complexity Index (NCI)—the higher the value, the better it can handle heavy, high-sulfur oils, or in other words, it can refine low-grade oils into high-quality oils. Refineries with low NCI values ​​can only handle light oils.

From the table above, it can be seen that most refineries that rely on oil from the Strait of Hormuz are designed to process heavy sour crude. If they are forced to refine only light sweet crude, problems will arise. ""Expensive conversion capacity will be left unused." — Cokers and hydrocrackers designed to crack heavy molecules will have no feed. The upper part of the distillation column will be overloaded because the light oil yields too much light fraction, exceeding the capacity. The result is reduced throughput, which means lost revenue.

           2. 3. The time required for adjustment.

Changing the crude slate, or the proportion and type of crude oil that refineries use for a certain period, could be another solution to the crisis. However, it's not simply about ordering oil from other sources; it requires adjusting the entire refinery system to make it feasible or cost-effective. The timeframe depends on the extent of the change, which could take longer than this crisis. The adjustment periods for different levels are as follows:

Significant implications for the current crisis: Refineries in China and India with high NCI (Non-Conforming Crude Diet) have enough flexibility to switch crude diets within 1-3 months, but many refineries in Japan and South Korea with lower NCI will need 3-6 months, or may require retrofitting if the ratio change is significant.

3. Global Adaptation.

            Short term : The market is panicking — Bypass capacity (excess reserves) can only replace about ~25%, prices are soaring, and crude quality mismatch is making "switching sources" slower than expected.

          Mid-term (1-4 quarters): High NCI refineries (China, India) can adjust their crude diet within 1-3 months. Low NCI refineries (Japan, parts of Korea) will take 3-6 months. Alternative infrastructure is becoming cost-effective.

          long term: Energy transition reduces reliance on oil in the electricity sector, infrastructure is diversified, and the world has higher resilience to single chokepoint risk.

          Major risks : "Short-term" fluctuations can last as few as a week or as long as a year. Those without sufficient liquidity to sustain themselves may not be able to capitalize on the upside from long-term corrections.

4. Strategy Summary: Managing Global Volatility with Asset Allocation

The Strait of Hormuz crisis highlighted the significant link between global energy and financial markets. Under increased uncertainty, short-term investment timing becomes challenging, while appropriate asset allocation remains a key risk management tool. One approach is to invest 80-85% in a diversified core portfolio across multiple assets and regions, and 15-20% in assets with potential for additional returns, such as commodities.

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This document is intended for general informational and analytical purposes only and does not constitute investment advice. References: EIA, IEA, Vortexa, Bloomberg, and various news outlets as of April 2026; however, the situation may change rapidly.