Crude oil prices rose in European trading on Monday amid reports of rising tension in the Middle East. West Texas Intermediate (WTI) traded near $103.50, up about 4% on the day, while Brent was at $112, up 4.1%.
Iran’s Fars News Agency reported that a US warship trying to pass through the Strait of Hormuz was targeted and hit by two missiles after ignoring warnings from Iran. Iran’s state TV reported the warship then turned back and did not enter the strait.
Market Reaction And Volatility
The first priority is confirming these reports, as initial headlines often cause overreactions. Implied volatility in oil options has likely exploded, making strategies like buying calls very expensive but potentially very profitable. We saw this back in early 2022 after the Ukraine invasion when the CBOE Crude Oil Volatility Index (OVX) more than doubled in a matter of weeks.
The key risk here is the Strait of Hormuz, a critical chokepoint for global energy. Around 21 million barrels of oil, or about 20% of daily global consumption, passed through it last year according to the latest EIA data. A full or partial closure would remove a massive amount of supply from the market almost overnight.
We should be watching the Brent and WTI forward curves, which will likely blow out into a steep backwardation, signaling extreme near-term supply fears. This is especially concerning given that global inventories were already showing modest draws through the first quarter of 2026. The spread between the front-month and six-month contract is a key indicator to monitor for signs of panic.
However, we remember the attacks on Saudi facilities back in 2019, which caused a huge initial price spike that faded within two weeks as production was restored. If this turns out to be a limited engagement without a sustained blockade, this rally could be short-lived. Therefore, using call spreads to define risk might be more prudent than holding outright long futures positions until there is more clarity.
Refining Margins And Product Spreads
This isn’t just a crude oil story; we are watching for a surge in refining margins. The crack spread, which measures the profitability of turning crude into gasoline and diesel, should widen significantly on fears of feedstock disruption. Trading product futures or options could be another way to express a bullish view on this event.
