Kevin Hassett, Director of the National Economic Council, told FOX Business on Friday that the Federal Reserve’s outlook for having room to cut interest rates will be very solid, tying that confidence in part to expectations around easing energy-driven inflation pressures.
He also argued the Strait of Hormuz could be reopened within two months, noting that backup plans exist to reopen it and that energy prices should fall rapidly once normal flows resume.
Lessons From The 2025 Strait Of Hormuz Disruption
However, looking back to early 2025, officials similarly suggested the Strait would reopen within roughly two months, but the actual timeline stretched closer to four. That gap between guidance and reality produced a sharp volatility regime in crude, while the initial optimism trapped traders who positioned too early for an immediate decline in energy prices.
WTI crude futures near $95/barrel during the 2025 closure peak briefly touched $120 before collapsing into the low $70s by year-end. The move echoed the Suez Canal episode in 2021, but with a more extreme magnitude.
Crude volatility also exploded: the CBOE Crude Oil Volatility Index (OVX) jumped more than 40% in that window, favoring traders who bought straddles or strangles rather than making a simple directional bet.
The market’s broader “Fed cuts because energy falls” thesis was right on direction but wrong on timing. The initial oil spike delayed the Fed’s action because policymakers waited for inflation prints to confirm that the reopening had truly flowed through to prices.
Positioning For Chokepoint Risk And Policy Lag
With tensions now rising near other key chokepoints, a similar sequence is plausible if shipping lanes are threatened: an initial uncertainty spike followed by a relief-driven collapse once logistics normalize. In that setup, traders may look at long-dated call options on energy stocks and crude to capture the upside shock, paired with shorter-dated puts to monetize a later downside move when the situation resolves.
Traders could also consider selling short-term, out-of-the-money puts on interest rate futures, expressing the view that the Fed may hesitate to cut quickly if a temporary energy shock lifts near-term inflation. CME FedWatch currently shows markets pricing better than a 50% chance of a cut by August, which may be too optimistic if the 2025 timing lesson repeats.
