Escalation Timeline And Market Signals
The report referred to the heaviest US attacks so far occurring yesterday. It also cited Israeli defence media suggesting the US could intensify actions for the next 1–2 weeks, and media reports that some in the Israeli government think it could take up to a year for Iran’s regime to fall. The Wall Street Journal reported that the IEA may propose its largest ever oil release from strategic reserves, beyond G7 commitments. The report also noted a gap between screen prices and physical availability of energy and related products such as sulphur, fertilisers, and helium. We should remember the lessons from the 2025 Hormuz crisis, where the market ignored the clear physical risks of Iranian attacks and a potential shipping bottleneck. At that time, oil prices on the screen suggested a peace deal was imminent, even as US military action was escalating. This shows a dangerous disconnect between financial markets and physical reality. Currently, Brent crude is trading in a deceptively calm range near $85 per barrel, suggesting stability. However, this price is propped up by the recent OPEC+ decision to extend voluntary production cuts of 2.2 million barrels per day through the second quarter. This leaves very little spare capacity in the system to handle any unexpected supply disruptions. Unlike in 2025, we no longer have the buffer of a large strategic reserve release, as US inventories are now at a 45-year low after that event. Shippers are already pricing in renewed risk, with war risk premiums for Hormuz transits quietly ticking up by 0.25% in the last month despite the calm in headline crude prices. This suggests the physical market sees dangers that the paper market is ignoring.Options Positioning For Tail Risk
This creates an opportunity in the options market, as implied volatility seems too low given the underlying fragility. We should consider buying long-dated call options on crude to protect against a sudden price spike that financial markets are not anticipating. The disconnect between stable screen prices and the growing risks to physical barrels and their derivatives, like sulphur and fertilizers, is becoming too large to ignore. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
