On April 7, a two-week ceasefire between the US and Iran dropped WTI crude from $115 to $95 in a single session. Oil traders celebrated. Analysts called it a turning point. Four days later, JD Vance announced the talks had failed. Trump declared a naval blockade of the Strait of Hormuz. Oil surged back above $100.
This pattern — crisis, relief, escalation — has repeated three times since February 28. But the oil price is not the story. The story is what happens to domestic refining capacity while the world watches the Strait of Hormuz.
1 Million Barrels Per Day — Gone in 12 Months
LyondellBasell permanently closed its Houston refinery in February 2025: 264,000 BPD. Phillips 66 shut down its Los Angeles refinery in Q4 2025: 139,000 BPD. Valero Benicia is closing this month: 145,000 BPD. Wyoming Refining has been idle since a February 12 explosion. The Valero Port Arthur diesel hydrotreater — 47,000 BPD — remains offline from a March 24 explosion with an ongoing OSHA investigation.
Combined, over 1 million BPD of US refining capacity has gone offline since early 2025. This is not a temporary disruption. LyondellBasell, Phillips 66, and Valero Benicia are permanent closures. The capacity is not coming back.
The EIA is projecting US distillate inventories at multi-year lows through the end of 2026. Jet fuel supply is forecast at 21 days — the lowest since 1963. Average diesel prices are projected at $4.80/gallon, up 31% year-over-year. Every one of these metrics was getting worse before the Hormuz crisis. The blockade accelerated a structural trend that was already underway.
The Blockade Exposes the Fragility
The April 13 US naval blockade of Hormuz is the most aggressive American military action in the strait since Operation Praying Mantis in 1988. The IMF has already cut its 2026 global growth forecast to 3.1%, citing oil price volatility as the primary risk factor. Brent crude surged 7% to $102 on the blockade announcement. WTI hit $104 before settling into the low $90s on diplomatic signals.
But here is the point that most oil analysis misses: even if the blockade ends tomorrow, the domestic capacity losses are permanent. The ceasefire-and-collapse cycle is noise around a structural signal. The United States is refining fewer barrels per day in April 2026 than at any point since 2020, and no new greenfield refinery has been permitted in decades.
The Modular Refining Window
The DOE’s Section 1706 loan guarantee program — $250 billion in authority through September 2028 — explicitly includes refinery projects for the first time in history. This is the federal government acknowledging that domestic refining capacity needs rebuilding.
Porritt Inc.’s 25,000 BPD distillate-first micro-refinery design, completed in collaboration with our AI process engineering agent Vera, hits 55.8% distillate yield on Uinta Basin crude. That is 15-20 percentage points above conventional simple topping refineries at the same scale. The installed cost target is $22 million — roughly $2,200 per barrel of daily capacity. At current crack spreads of $40-45/bbl, simple payback is under 12 months.
The design is modular, skid-mounted, and deployable in 24-36 months. That deployment timeline matters because it is the only realistic path to new domestic refining capacity before the next geopolitical shock.
What Happens Next
The Hormuz blockade will dominate headlines for days or weeks. Oil will trade between $85 and $110 depending on the diplomatic hour. But the underlying math is unchanged: US capacity is shrinking, global demand for middle distillates is growing, and no new domestic refinery has been permitted in a generation.
The question for energy investors, refinery operators, and policy makers is not what WTI does this week. It is what domestic fuel supply looks like in 2028 with 1 million fewer barrels per day of refining capacity and zero new facilities under construction.
The window to build is open. Section 1706 provides the financing. The crack spreads provide the economics. The capacity losses provide the urgency. How long that window stays open depends on whether anyone walks through it.
Timothy Porritt is founder of Porritt Inc., building AI-powered tools for heavy industry including NEXUS CAD and NORMEX Standards AI. A petroleum engineer by training, Timothy writes about the intersection of industrial engineering, AI, and entrepreneurship.