Rabobank strategist Michael Every says US aims in a third Gulf conflict and control of Middle East energy could affect US global power and the Dollar’s support. The note says these effects could go beyond oil prices and US mid-term elections. The report says outcomes could change who sets future regional structures and energy access. It also refers to opinion pieces about a possible “blueprint for Chinese global leadership” if the US were to lose.

Geopolitical Stakes And Market Expectations

It adds that US actions may be shaped by this strategic aim and says markets may not get a quick de-escalation. It sets a base case that the war is largely over in 2–3 weeks, on terms favourable to the US, after conditions worsen first, and says longer escalation would affect economic forecasts. The note says the US is moving towards new defence systems, aiming to avoid using million-dollar missiles against cheap drones. It says this could drive a military-industrial restructuring, drawing lessons from Ukraine, and it mentions comments by Germany’s Rheinmetall CEO. US diary items listed include March consumer confidence and February JOLTS job openings. It also notes planned remarks from Chicago Fed President Austan Goolsbee. Given the high probability of severe escalation in the next two to three weeks, we should anticipate a sharp spike in market volatility. The VIX index, already elevated at 28, could easily test the highs we saw during the initial panic of the 2022 Ukraine invasion. Buying April or May VIX call options is a direct way to position for this “get much worse first” scenario. The conflict’s focus on Middle East energy makes crude oil derivatives essential for hedging. With Brent crude already surging past $115 a barrel, a 20% jump in March alone, options straddles on WTI and Brent could capture the extreme price swings expected in either direction. Recent EIA data shows US strategic reserves are at their lowest since the 2025 restock, leaving little buffer for a supply shock.

Tactical Hedges And Positioning

For broad market exposure, we see significant downside risk in the immediate term before any potential relief rally. Buying short-dated put options on the S&P 500, with expirations in late April, offers insurance against a sharp sell-off as the conflict intensifies. This is a tactical hedge, not a long-term bearish bet, designed to protect portfolios over this critical window. The expected shake-up in the military-industrial complex presents a specific sector trade. We should look past traditional defense contractors and focus on firms specializing in drone technology and cyber warfare, as they are poised to benefit from the shift away from expensive legacy systems. Call options on companies like Kratos Defense & Security Solutions (KTOS), which is up 30% this year, seem more prudent than exposure to giants like Lockheed Martin (LMT) that have been lagging. We must also watch for a flight to safety, which would strengthen the US Dollar and rally US Treasuries. The Dollar Index (DXY) is already testing its 2025 highs, and buying call options on dollar-tracking ETFs like UUP can hedge against currency instability. A rally in Treasury bonds would push yields down, so positioning in Treasury futures could protect against a risk-off shock to interest rates. The upcoming US data will be viewed through this geopolitical lens. We expect the March consumer confidence report to fall sharply, with forecasts targeting 85.0, a level not seen since the regional banking scare in 2025. Any indication from Chicago Fed President Goolsbee that the conflict is altering the Fed’s policy path will inject further volatility into interest rate swaps and futures markets. Create your live VT Markets account and start trading now.

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