If the US attacks Iran, Iran might respond by laying mines in the Strait of Hormuz and targeting US military bases in the Gulf. This conflict could keep oil prices high, affecting the global oil market for a long time.

Effects of Disruption in the Strait of Hormuz

Any military action between the US and Iran could disrupt a major shipping route crucial for transporting oil worldwide. The Strait of Hormuz is narrow but very important. If it gets closed or restricted due to mines or fighting, the flow of oil will be greatly reduced. With less oil moving out of the Gulf, buyers will rush to find alternatives, driving prices up quickly. We’re already seeing oil futures rise in anticipation of these events. This increase isn’t due to actual supply cuts, but rather because people think cuts may happen. If threats escalate without immediate action, speculation could grow. However, if tankers are damaged or shipping routes are blocked, the price surge will become a reality rather than speculation. Looking back at past events, like the tanker incidents in 2019, even small maritime threats caused big jumps in price volatility. Now, with tighter supplies and uncertain interest rates, risk premiums are likely to last longer. Volatility traders should expect more significant price swings, especially over the next one to three months. In this situation, gamma becomes pricey for good reason.

Market Sensitivity and Strategic Monitoring

We are closely watching calendar spreads, which are particularly sensitive right now. Short-term contracts will react to news almost immediately, while longer-term contracts may respond more slowly, depending on how long tensions last. There might be opportunities, especially in ratio call spreads on Brent crude, especially if short-term contracts see rising interest. With geopolitical risks added to an already fragile market, metrics like call skew are helpful. They indicate not only how high prices might rise but also how many traders are protecting themselves against such increases. When the skew steepens, it could signal a chance to fade positions, but only if tensions ease. We are carefully tracking volume in over-the-counter (OTC) markets, especially for energies linked to Middle Eastern supply. Options related to shipping rates and distillates are experiencing increased demand for upward bets. This trend makes sense, as logistical blockages affect refined products too. It’s also important to monitor positions in clean tankers and dry bulk derivatives, as sudden changes there can signal how the market might react. If physical rerouting starts happening, those markets will show stress before traditional pricing adjusts. Price movements across assets remain steady but cautious. In such a tense region, even small changes can lead to big shifts. Timing is critical, as what seems unlikely one day may appear very possible the next. This sentiment is what the market’s curve indicates. Stay vigilant. Keep scenarios updated. Monitor flows as closely as prices. Create your live VT Markets account and start trading now.

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