Iran Threatens Strait Closure
Iran’s Islamic Revolutionary Guard Corps said it would fully shut the strait if the US moves ahead. Tehran also threatened to target US and Israeli assets in the region, including energy, IT, and desalination facilities. Reuters reported Saudi Aramco cut crude shipments to Asian buyers for a second month in April as disruption through the Strait of Hormuz affects flows. Supplies are being limited to Arab Light crude from the Red Sea port of Yanbu, tightening input supply for Asian refiners and limiting output. Traders increased bets on a possible Federal Reserve rate rise by year-end due to inflation risks. The ECB, BOE, and BOJ left rates unchanged last week, while indicating they could tighten further if inflation remains persistent. We are seeing the after-effects of the US-Iran conflict from early 2025, which saw Brent crude surge past $110 a barrel. While prices have since retreated to the mid-$80s as of March 2026, the geopolitical risk premium has not vanished entirely. This suggests acquiring long-dated call options on crude oil futures could be a prudent hedge against any renewed escalation in the Strait of Hormuz.Strategy Implications For Markets
The inflation fears from last year’s oil shock did materialize, prompting the Federal Reserve to maintain its hawkish stance through 2025. However, the latest data shows US CPI has cooled to 2.6% year-over-year, leading us to believe the Fed’s tightening cycle is over. Consequently, positioning for a flatter yield curve through interest rate futures seems logical, anticipating that long-term rates may fall faster than short-term ones. Silver’s drop to the mid-$60s in 2025 was a direct result of traders pricing in the central bank hawkishness we saw unfold. With the Federal Funds Rate holding steady at the 5.50% mark for the last two quarters, silver has been unable to gain significant traction as a non-yielding asset. We see an opportunity in buying slightly out-of-the-money call options on XAG/USD, as any signal of a future rate cut could cause a sharp upward repricing. We recall that implied volatility spiked during the Hormuz ultimatum in 2025, with the VIX index touching levels above 35. It has since collapsed and is now trading in the much calmer 15-17 range as of late March 2026. This presents a favorable entry point to buy VIX call spreads, offering a cost-effective way to protect portfolios from a future shock. Create your live VT Markets account and start trading now.
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