US President Donald Trump said on Truth Social that US representatives will travel to Islamabad, Pakistan, for negotiations with Iran on Monday. He linked the talks to tensions in the Strait of Hormuz.
He wrote that Iran “fire[d] bullets” in the Strait of Hormuz and called it a violation of a ceasefire agreement. He said the shots were aimed at a French ship and a freighter from the United Kingdom.
Trump said Iran had announced it was closing the Strait, while also stating that a US “blockade” had already closed it. He said a closed passage would cost Iran “$500 Million Dollars a day”.
He said the United States “loses nothing” and claimed many ships were heading to the US, including Texas, Louisiana, and Alaska, to load cargo. He referenced the IRGC in this context.
He said the US was offering a “very fair and reasonable” deal. He threatened that if there is no deal, the US would “knock out every single Power Plant, and every single Bridge, in Iran”.
He also said this approach should have been taken by other US presidents for “the last 47 years”. He ended by calling for an end to what he described as the “Iran killing machine”.
We are bracing for a massive spike in volatility, with the VIX index likely to surge well above 20 in the coming days. The conflicting signals of high-level negotiations alongside direct military threats create maximum uncertainty, which is pure fuel for the market’s fear gauge. We saw a similar, though less intense, situation back in April 2024 when regional tensions pushed the VIX over 19, and this has the potential to be much larger.
The most direct play is on a higher oil price, specifically for Brent crude futures. With the Strait of Hormuz, the transit point for about 21% of global petroleum liquids consumption, now a live-fire zone, a significant risk premium must be priced in immediately. We believe prices could quickly test the $100 per barrel level that we briefly touched last year.
Pay close attention to the widening spread between Brent and WTI crude, as US oil is insulated from this specific chokepoint. The comments about ships diverting to Texas and Louisiana confirm that US exports are set to benefit, making WTI more attractive relative to the international benchmark. Historically, this spread has gapped out by over $10 during major Middle East crises, and we see that happening again.
We are aggressively buying calls on gold as a primary hedge against an escalating conflict. This is a classic flight-to-safety move, and we only have to look back to the spring of 2024 when similar fears sent gold to record highs above $2,400 an ounce. The threat of direct attacks on a sovereign nation’s infrastructure is a far more powerful catalyst for gold than the central bank buying we saw in 2025.
Defense sector equities are another area of focus, as the threat of destroying power plants and bridges implies the use of sophisticated munitions. We expect major contractors like Raytheon and Lockheed Martin to see a significant bid, along with the broader aerospace and defense ETFs. This is a direct reaction to the market pricing in an increased probability of military action.
However, we must be prepared for a sharp reversal if a deal is reached in Islamabad. A diplomatic breakthrough would cause oil prices to collapse and equities to rally, so any bearish position must be carefully managed. This binary outcome makes options strategies like long straddles on oil ETFs very appealing, as they profit from a big move in either direction.
