Geopolitical Shock And Supply Disruption
Nine vessels have been attacked since the conflict began, including a crude tanker near Iraq’s Khor al Zubair port and another off Kuwait that was taking on water and spilling oil on Thursday. The strait normally carries about 20% of global daily oil supply, and tanker traffic has fallen to near zero. China instructed its largest refiner to suspend diesel and petrol export contracts. Qatar halted LNG production at its two main facilities after infrastructure attacks, removing roughly 20% of global LNG supply. Iraq began shutting the Rumaila oil field due to a lack of storage while tankers cannot leave the Gulf. In technical trading, WTI was at $88.06, with support cited near $65.20 and $63.20, and resistance near $90.00. Looking back at the market chaos around this time last year, the surge in WTI past $87 was a clear signal of extreme geopolitical risk. The closure of the Strait of Hormuz, which we know handles about a fifth of the world’s daily oil supply, justified the massive risk premium being priced in. The near-vertical ascent from the $65 consolidation zone in February 2025 was a classic black swan event for energy markets. In the days following the initial shock in early March 2025, we saw the smartest plays were in the options market, not just in outright futures. Buying front-month call options would have captured the explosive upward move with defined risk. Implied volatility would have skyrocketed, meaning those who were already long volatility through instruments like straddles reaped significant rewards as prices swung wildly.Positioning And Volatility Lessons
However, we also recall how quickly such spikes can reverse, much like the price action following the start of the Ukraine conflict in 2022 when Brent crude briefly hit $139 before retreating below $100 within a month. This suggests that as the price became parabolic in 2025, selling out-of-the-money call spreads would have been a prudent way to bet on the rally eventually stalling. This strategy would have profited from both the price ceiling and the eventual crush in volatility once the immediate panic subsided. The CBOE Crude Oil Volatility Index (OVX) likely saw a massive spike during that period, as fear gripped the market. Historically, the OVX surged over 150% in the weeks after the 2022 Ukraine invasion, and we can assume it surpassed those levels in March 2025. This made long volatility strategies highly profitable for those anticipating the violent price swings in either direction, not just the rally. Given that experience, we should be closely watching for any signs of renewed instability in the Gulf. With WTI currently trading at a more subdued $78.50 as of early March 2026, the lesson from last year is to be prepared for rapid, event-driven repricing. Even with stable markets today, holding long-dated, cheap out-of-the-money call options can serve as an effective and low-cost hedge against a similar event recurring. Create your live VT Markets account and start trading now.
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