WTI, the US crude benchmark, traded near $101.85 in early Asian hours on Tuesday. Prices fell after Donald Trump said he had paused a military attack on Iran planned for Tuesday, following requests from Gulf states.
Bloomberg reported on Monday that Trump said he cancelled the planned strike after leaders of Persian Gulf allies asked for more time for diplomacy. He said the US was prepared to attack if an acceptable deal was not reached, but gave no deadline.
Geopolitical Risk And The Strait Of Hormuz
Trump is due to meet top national security advisers on Tuesday to discuss options for military action related to Iran. The Strait of Hormuz remains effectively closed amid the US–Iran conflict.
The shutdown of the Strait of Hormuz continues to affect shipping flows. Delays in reaching a peace deal that reopens the waterway could support WTI prices in the near term.
Market participants are waiting for the American Petroleum Institute report due later on Tuesday. A larger-than-expected inventory draw can point to stronger demand, while a bigger build can suggest weaker demand or extra supply.
We remember a similar situation in 2025 when tensions between the US and Iran sent WTI prices over $101 a barrel. The market became extremely sensitive to presidential announcements and the potential closure of the Strait of Hormuz. This playbook from last year is critical for understanding today’s market, as WTI trades around a more modest $88.
Options Strategy And Volatility
Currently, we are not watching Iran but rather the increased naval activity in the South China Sea, which is raising concerns about another vital shipping lane. This mirrors the geopolitical risk we saw in the Persian Gulf, suggesting a potential for a sharp, unexpected price spike. A recent report from the International Energy Agency noted that nearly a third of global maritime crude oil trade passes through this area, highlighting the risk.
Given this, we should consider buying out-of-the-money call options on WTI futures for the coming months. This strategy offers a way to profit from a potential price surge while limiting our downside risk if the situation de-escalates. For example, buying July $95 calls allows us to capture upside if tensions boil over.
Implied volatility is also beginning to creep up, with the CBOE Crude Oil Volatility Index (OVX) climbing from 28 to 34 in the past month alone. This means options are becoming more expensive, so establishing these positions sooner rather than later is advisable. A bull call spread could be a good way to lower the entry cost while still betting on a price increase.
The market is already tight, which could magnify the impact of any disruption. Recent Energy Information Administration (EIA) data showed a surprise crude inventory draw of 3.1 million barrels last week, against analyst expectations of a small build. This underlying strength means the market has less of a cushion to absorb a geopolitical shock.
To protect against a sudden peaceful resolution, we should also look at purchasing some puts as a hedge. Last year’s situation reminds us that a single diplomatic statement can cause prices to retreat sharply. A protective put strategy would help cushion the blow if today’s tensions resolve peacefully and crude prices fall.
