Analysts have been analyzing Trump’s recent actions regarding Iran. JP Morgan pointed out that past regime changes in the area often led to oil prices increasing by as much as 76%, with an average rise of 30%. Trump spoke about potential regime change in Iran, although some members of his team claimed that was not the goal. ANZ predicts that Iran might retaliate by disrupting oil shipments from the Middle East, possibly pushing prices up to the $90–95 per barrel range. Many agree that completely closing the Strait of Hormuz is highly unlikely for Iran. However, this doesn’t mean that oil transport won’t face disruptions.

Market Reactions to Possible Regime Change

In simple terms, Trump’s statements about potential regime change in Iran have caused market jitters. While some officials downplayed his remarks, the concerns have spread. Historical data from JP Morgan shows that similar statements in the past have often led to significant hikes in oil prices, sometimes by over two-thirds. On average, prices increase by about a third during times of leadership changes in the region. That’s a considerable shift. ANZ believes that Iran could respond by targeting oil transport routes out of the area. While it’s unlikely they could completely close shipping lanes, even small disruptions—like attacks or delays—could unsettle markets. They speculate that oil prices could rise to the mid-$90s if supply routes face any pressure. This is especially relevant, given the recent volatility in crude futures. While blocking the Strait of Hormuz completely might be unrealistic, history shows that even minor incidents can affect the market. Events like missile tests or meddling with oil tankers can lead traders to anticipate worst-case scenarios. In such situations, perceptions quickly influence demand for hedging, which causes prices to rise almost instinctively.

Strategic Steps in Response to Market Changes

What should we do about it? We’ve noticed that forward contracts for Brent are showing a steeper curve, indicating greater concerns about future oil availability. Implied volatility has increased, and CDS spreads on Middle Eastern sovereigns are also widening, albeit slowly. These aren’t random shifts; they reflect market anticipation of geopolitical risks. Traders looking to position themselves should pay attention to the spread between Brent and WTI, which typically widens during Middle East instability. We’re already observing initial signs of this. Additionally, long-dated options are pricing in increased event risk, echoing previous movements during tensions in Iraq, Syria’s chemical weapons incident, and Libya’s supply issues. Instead of assuming the situation will resolve itself just because the Strait remains open, we should watch freight rates and insurance costs for tankers in the Persian Gulf. These costs are among the first to rise when tensions escalate. If a minor news event leads to rerouting or delays, commodity traders will quickly react, especially those relying on shipping data algorithms. Keep an eye on open interest data. If speculative positions in crude futures increase significantly while commercial hedging lags, we may end up pricing in gains before any solid disruptions are confirmed. This has happened before—markets sometimes preemptively adjust, and full pipeline shutdowns aren’t necessary for this to occur. We should also monitor fuel oil cracks and middle distillates. If refiners indicate tighter margins through adjustments in run rates or crack spreads, that serves as another early warning signal along the supply chain. This reinforces that these events are significant, as traders reassess risk premiums based on potential delivery changes and input costs. It’s during times like this that clear signals can get lost in the excess of news and reactions. But by carefully observing not just prices but also flows and premiums, we can avoid getting caught off guard by rapid market moves. The market has predictable responses to these events, even if the actual events are unpredictable. Risk management models need to be adjusted, especially if delta-hedging strategies haven’t accounted for the recent backwardation increase. Passive exposure to energy-focused indices won’t provide much protection, particularly if those indices rely heavily on spot instruments. Consider where your risk is most concentrated, not just by price but in terms of delivery timelines. There’s a narrow window to act before summer liquidity is thinner. This always makes price swings wider and increases Theta burn. Focus on structure, not sentiment. Create your live VT Markets account and start trading now.

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