The price of Brent Oil has jumped to $79 per barrel, reaching its highest level in five months. This increase is due to rising tensions between Israel and Iran, which have been ongoing for a week. These tensions bring new risks of supply disruptions in the oil market. Reports indicate that the oil prices are likely to be affected by developments in the Middle East conflict over the next week. If the United States intervenes alongside Israel, prices could rise even further, as President Trump plans to make a decision in the next two weeks.

Potential Blockade of the Strait of Hormuz

A possible blockade of the Strait of Hormuz raises significant concerns, as it is essential for transporting about one-fifth of the world’s oil supply each day. Such a blockade would severely disrupt the oil market and drive prices up, though the chances of this happening remain low. If Iran attempts to block the Strait, it would incur heavy losses, losing its ability to export oil and potentially upsetting China, its biggest customer. China relies heavily on oil from the Persian Gulf, so a blockade would have a significant impact. If Iran faces a crisis, the situation around the Strait could turn more unpredictable. The recent rise in Brent crude to $79 per barrel—its highest since five months ago—has been fueled by fears over the ongoing Israel-Iran conflict. The last week has seen increasing instability in the region, creating concerns about possible oil supply issues. While Middle East tensions usually affect energy markets, the current military and political climate suggests we should prepare for ongoing volatility. The Strait of Hormuz, through which nearly 20% of the world’s crude oil flows daily, is central to this situation. Any suggestion of tanker disruptions in this narrow route tends to make energy markets anxious, and rightly so. If this waterway were to close—though unlikely—it would quickly and severely drive prices up. However, it would also isolate Tehran and limit its ability to sell oil, especially to China, its main buyer. While the chances of a long-term shipping halt are low, the market is right to treat it as a potential risk. Trump, a key figure in the region’s policy decisions, has indicated he will make a choice within two weeks, possibly working with Israeli forces. Speculation has emerged that this U.S. alignment might involve military actions or new restrictions on Iranian oil exports. From a trading perspective, this opens a window for increased options—especially for short-term contracts, where geopolitical uncertainty raises energy risk.

Market Implications and Trading Strategies

Consequently, we have started analyzing crude options and volatility trends, especially in light of U.S. political timelines. The front end of the curve has already reacted, with premiums on upside calls widening, particularly for contracts expiring soon. Traders seem to be positioning for further price gains, possibly expecting a move past $80. However, those involved in options trading should be cautious: if diplomatic efforts gain momentum, implied volatility could decrease rapidly. It’s also essential to reevaluate correlation assumptions. Oil prices are no longer driven solely by fundamentals; instead, the risk-on versus risk-off dynamic tied to military events is starting to influence commodity-related investments. Historically, when Washington reacts in such crises, we tend to see a temporary price spike followed by a decline as supply chains adjust and Asian buyers change their purchasing strategies. Whether this pattern holds true this time depends on how much the conflict escalates. For now, positions in energy derivatives should be monitored closely. Being exposed to event-driven risks remains crucial, particularly in the options market where skew can indicate sentiment trends. No model can fully account for the delay in policy responses from Tehran or Tel Aviv, so careful management of delta and vega exposure is vital. We have analyzed several scenarios based on historical incidents—like the Suez Canal closure, the Gulf War, and tanker attacks—to understand potential price shocks if shipping routes are threatened, even momentarily. As always, liquidity in certain timeframes may tighten if news changes rapidly, so the timing of execution is more critical than usual this week. Monitoring order flow in OTC swaps could also provide an early indication of changing sentiment, especially if international desks in Europe start adjusting their positions away from paper barrels. Create your live VT Markets account and start trading now.

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