Strait Of Hormuz Tensions Rise
US President Donald Trump said on Saturday that Iran’s power plants would be attacked, starting with the largest, if the Strait of Hormuz is not opened within 48 hours. The Strait is a key route for energy shipments. UK Prime Minister Keir Starmer, Bank of England Governor Andrew Bailey and Finance Minister Rachel Reeves are due to attend an emergency meeting on Monday about the economic fallout from the war in Iran. The UK government confirmed the meeting. The Bank of England kept interest rates unchanged at 3.75% at its March meeting on Thursday, in line with expectations. Bailey said the conflict could raise inflation in the near term and linked energy price rises to restoring safe shipping through the Strait of Hormuz. We are looking back at the severe risk-off sentiment that gripped markets in March of 2025. The escalation of US-Iran tensions a year ago, which pushed GBP/USD toward 1.3320, created a spike in volatility that still echoes today. Those events serve as a critical reminder of how quickly geopolitical risk can dominate currency markets.Oil Volatility And Hedging
The primary shockwave from the 2025 Strait of Hormuz crisis was in energy prices, with Brent crude briefly spiking over $150 per barrel before settling. Even now, with oil trading at a tense $95 per barrel, implied volatility in energy derivatives remains elevated compared to pre-crisis levels. Traders should consider buying call options on oil futures to hedge against the constant threat of renewed conflict in the region. As Governor Bailey warned in 2025, the energy shock did materialize, pushing UK inflation to a peak of 7.1% in the third quarter of last year. Although UK CPI has now fallen to 4.3%, it remains stubbornly high, forcing the Bank of England to maintain its bank rate at 5.0%, a level reached in late 2025. This environment suggests positioning through interest rate swaps for a “higher for longer” rate scenario from the BoE. The pound itself reflects this persistent strain, currently trading near 1.2510 against the dollar, significantly weaker than during the peak of the 2025 crisis. The economic fallout has created a fragile equilibrium, where high interest rates support the currency but a weak growth outlook weighs on it. This justifies using options strategies like strangles on GBP/USD, which profit from a significant price move in either direction. We remember the emergency economic meetings held by UK officials last year, and we are now seeing the statistical impact of that turmoil. The UK economy narrowly avoided a recession, but Q4 2025 GDP growth was a flat 0.0%, and recent business investment figures have been disappointing. This underlying weakness suggests that any renewed dollar strength could easily push GBP/USD towards its post-crisis lows, making protective put options a prudent strategy. Create your live VT Markets account and start trading now.
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