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For months, the oil market’s boogeyman was the Strait of Hormuz, that narrow waterway where roughly a fifth of the world’s oil supply squeezes through. JPMorgan has now decided there’s a bigger problem.
The bank’s analysts published a note on July 10 redirecting their focus from Hormuz transit risks to the deteriorating state of Russian refining capacity. Russian refinery runs have dropped to approximately 3.6 million barrels per day, nearly 40% below pre-war levels.
From chokepoints to crackdowns
JPMorgan had previously warned that sustained disruptions at the Strait of Hormuz could send oil prices to $120 to $150 per barrel. That scenario hasn’t disappeared, but it’s been eclipsed by the systematic degradation of Russian refining infrastructure.
Ukrainian drone strikes, which intensified beginning in March 2026, have hammered Russian refineries with surprising effectiveness. Hormuz represents a potential disruption. Russian refining losses are an actual, measurable supply deficit that’s already reshaping global product markets.
What 40% looks like in practice
A 40% decline in Russian refinery output is staggering when you consider Russia’s role in global energy markets. Before the conflict escalated, Russia was one of the world’s largest refined product exporters, shipping diesel, fuel oil, and other products across Europe, Asia, and beyond.
Losing that much refining capacity doesn’t just affect crude oil prices. It creates a bottleneck further down the supply chain. Crude can still flow, but the facilities needed to turn it into usable fuel are offline. Diesel prices, jet fuel costs, and petrochemical feedstock availability all get squeezed.
The timing also complicates matters for OPEC+, which has been carefully managing production cuts to support prices. If Russian refining stays impaired, the cartel faces a dilemma: increase crude output to compensate for lost products, or hold steady and watch refined product prices climb further.
The macro ripple effects
JPMorgan’s earlier $120 to $150 per barrel warning for a Hormuz scenario was already enough to make fixed-income traders nervous. A sustained refining crunch in Russia creates persistent upward pressure on refined product costs.
Crack spreads, the difference between crude oil prices and refined product prices, tend to widen dramatically when refining capacity gets constrained. Drone strikes can be repaired, but sustained campaigns targeting the same facilities create cumulative damage that takes years and billions of dollars to rebuild, especially under sanctions that restrict access to Western technology and equipment.
JPMorgan isn’t saying Hormuz no longer matters. What the bank is saying is that the probability-weighted risk has shifted. Hedging against a Hormuz disruption was about tail risk protection against a low-probability, high-impact event. Positioning for a Russian refining crisis is about adjusting baseline assumptions for where oil and product prices settle over the next several quarters.
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