The Strait of Hormuz has been de-facto closed since late February, with tanker transit calls slumping to near-zero across every cargo category. Since then, physical energy markets have repriced sharply higher.
Crude oil exports across the Gulf fell by c.43% between February and March. This left c.11mb/d of production effectively offline.
Implications For Energy Supply
The disruption has spread beyond energy into broader commodity pricing, including food prices. Cross-asset correlations indicate markets are pricing an inflation shock rather than a growth shock.
Hard data has not yet shown any growth impacts. The article was produced using an Artificial Intelligence tool and reviewed by an editor.
With the Strait of Hormuz effectively closed since late February 2026, we must position for sustained high energy prices. The resulting drop of roughly 11 million barrels per day has created a significant supply shock that is not a short-term event. We should be holding or adding to long positions in crude oil futures, particularly in contracts for the coming months like June and July Brent, and buying call options on major energy producers and ETFs.
This supply shock has already driven oil prices to levels not seen in over a decade, with West Texas Intermediate futures now trading above $135 per barrel. For context, we saw a similar, though less severe, spike in the summer of 2022 when prices briefly crossed $120, which at the time significantly impacted global inflation. The current situation is more severe, suggesting these price levels or higher will be the new reality for the foreseeable future.
The market’s immediate reaction is an inflation shock, and we must trade accordingly. With the March Consumer Price Index data reflecting the initial surge in energy costs, we expect the Federal Reserve will abandon any thought of rate cuts this year. We should therefore use interest rate derivatives to bet on a higher-for-longer policy, as the Fed will be forced to combat this new inflationary wave.
Positioning For Macro Volatility
The market has not yet fully priced in the inevitable growth shock that follows a sustained energy crisis of this magnitude. High energy acts as a tax on consumers and a major input cost for businesses, which will eventually slow economic activity significantly. This presents an opportunity for us to begin layering in positions that will profit from a downturn before the rest of the market catches on.
To prepare for this slowdown, we should start buying medium-term put options on broad market indices like the S&P 500 and the Nasdaq 100. Cyclical sectors, such as consumer discretionary and industrials, will be the most vulnerable, making puts on their corresponding ETFs a tactical move. These positions act as a hedge against our inflation-focused trades and will become profitable as hard economic data begins to weaken in the coming months.
The uncertainty of this situation also means we should expect a significant increase in market volatility. The VIX, currently hovering in the low 20s, appears undervalued given the geopolitical risk and economic implications of the strait’s closure. We should be purchasing VIX call options as a direct and cost-effective way to bet on rising market fear and uncertainty.
Finally, we cannot ignore the direct spillover from energy into food prices. Higher fuel and fertilizer costs are already impacting the agricultural sector, a dynamic we saw play out in early 2022 following the conflict in Ukraine. We should look to establish long positions in agricultural commodity futures, such as corn and wheat, to capitalize on the coming rise in food inflation.
