France, Germany, and the UK have told the UN they might bring back sanctions on Iran if the country does not resume nuclear talks, according to the Financial Times. In their letter, the E3 foreign ministers said they would use the “snapback” mechanism if Iran does not find a diplomatic solution by August 2025 or if it doesn’t take advantage of an extension. This announcement follows in-depth discussions in Istanbul, which were the first direct talks since the recent Israeli and US strikes on Iranian nuclear sites. London, Paris, and Berlin have not yet replied to Reuters’ questions about this issue.

Impact on Oil Market

Tensions in the Middle East often affect the oil market and could boost oil prices. With the end-of-August deadline approaching fast, there’s a clear risk of market disruption. The warning from the E3 adds a significant geopolitical risk for crude oil. We should quickly consider short-term bullish strategies on oil. Buying call options on WTI and Brent crude futures with September or October 2025 expiration dates could be beneficial. This approach allows us to profit from a potential price increase while limiting our risk to the premium paid. Currently, WTI is about $85 per barrel, which sets a clear baseline for choosing strike prices for these options. A similar situation happened in 2018 when sanctions were heavily enforced. Brent crude prices rose over 20% leading up to that time as the market anticipated a loss of Iranian supply. History indicates that the market will likely react early rather than wait for a final decision at the end of the month.

Consequences of Sanctions

The threat of sanctions is real, as Iran is currently exporting nearly 1.5 million barrels per day, much of which could be taken away from an already tight market. Additionally, any escalation increases the risk of disruptions in the Strait of Hormuz, a vital route for about 20% of global oil consumption. This combination of potential supply loss and transit risks strongly supports higher prices. We should also keep an eye on implied volatility, which is expected to rise sharply as the deadline approaches. The CBOE Crude Oil Volatility Index (OVX), currently at a moderate 35, could easily climb above 50, making options pricier. Acting sooner rather than later could help us secure better-priced contracts before this anticipated spike in volatility. Create your live VT Markets account and start trading now.

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