Deutsche Bank analysts said Brent crude stayed above $110 per barrel as the Strait of Hormuz remained constrained. They linked this to a close connection between oil prices and global yields.
By the close, Brent fell 0.73% to $111.28 per barrel after comments from President Trump. Prices then edged up for most of the next session.
Market Pricing And Rate Expectations
They said there was no single trigger, but the market priced a higher chance of near-term rate rises. They added that inflation expectations fell, while real yields led rate moves.
They noted that rates moved even with fairly steady oil prices, despite a tight correlation between Treasury yields and oil since the Iran conflict began. They also reported that European natural gas prices kept rising.
TTF gas increased for an eighth straight session, up 3.12% to EUR 51.82 per MWh, the highest level since early April. Eurozone data showed the trade surplus fell to a 9-month low in March, alongside higher oil prices and a wider deficit with China.
We saw last year, during the Iran conflict of 2025, how a constrained Strait of Hormuz kept Brent crude above $110 per barrel. This situation created a very tight link between oil prices and government bond yields, as markets braced for rate hikes. Even when oil prices stabilized at those high levels, the geopolitical risk alone was enough to keep upward pressure on interest rates.
Implications For Hedging And Portfolio Risk
Today on May 20, 2026, the dynamic is similar but with a different focus, as disruptions in the Red Sea continue to impact global shipping. While Brent is trading at a more moderate $84 per barrel, the cost of shipping has skyrocketed, with Drewry’s World Container Index showing rates from Shanghai to Rotterdam still 195% higher than one year ago. This ongoing pressure on supply chains suggests that any escalation could cause a sharp spike in energy prices, just as we witnessed in 2025.
The lesson from the 2025 Hormuz blockage is that these situations are highly unpredictable and can escalate without a single major catalyst. Therefore, we believe traders should consider using long-dated call options on Brent crude as a hedge against a sudden flare-up in regional tensions. Implied volatility remains below the peaks seen during last year’s crisis, potentially offering reasonably priced protection for portfolios.
We also recall how closely Treasury yields followed oil prices in 2025, as real yields rose on rate hike expectations. While that direct correlation has weakened recently, the risk of a repeat scenario is not zero. Traders could look at buying puts on Treasury note futures to protect against a sudden bond market sell-off if an oil shock were to re-emerge and force the Federal Reserve to reconsider its policy path.
In Europe, the situation is also reminiscent of last year, when rising TTF gas prices coincided with the oil crisis. Although European gas storage is currently at a comfortable 68% capacity, the Eurozone’s trade balance is still highly sensitive to energy costs. A sustained rise in oil prices, driven by logistics and geopolitical risk, would quickly renew pressure on European inflation and the ECB.
