Middle East Conflict And Supply Risk
Iraq reportedly shut down oil port operations after Iran attacked two foreign oil tankers. Bahrain, Kuwait, and the United Arab Emirates reportedly intercepted Iranian missiles and drones, while Saudi Arabia said two drones heading towards the Shaybah oilfield were destroyed over the Empty Quarter desert. China has effectively banned refined fuel exports for March “with immediate effect”, Reuters reported on Thursday. The report linked the move to efforts to prevent a domestic fuel shortage tied to the US‑Israeli war on Iran. WTI traded at $90.40, up about 3.5% on the day, while Brent rose 3% to $94.40. The US Dollar Index held just below 99.50 as US stock index futures fell 0.7% to 0.9%. EUR/USD traded near 1.1550 and GBP/USD fell below 1.3400. USD/JPY earlier reached above 159.20, then eased to slightly below 159.00, while gold moved below $5,200.Market Outlook And Positioning
The widening conflict in the Middle East has injected significant fear into the markets, setting a clear risk-off tone for the weeks ahead. We are seeing a classic flight to safety, with volatility expected to remain high. The CBOE Volatility Index (VIX) has already surged to over 28 this week, a level not seen since the banking turmoil in late 2025, and we expect it to stay elevated. With WTI crude pushing past $90, the immediate bias is to the upside despite the IEA reserve release, as war premiums are building rapidly. This situation is reminiscent of the initial supply shocks we saw in 2022, when prices briefly surged over $120 a barrel. We should be using call options to position for further gains while defining our risk, as a sudden de-escalation could reverse prices quickly. The US Dollar is the clear beneficiary of this mood, and we anticipate the Dollar Index will test higher levels in the near term. We saw the index rally well above 106 during the risk aversion of last year, showing there is significant room for it to run if this crisis deepens. Therefore, we are looking at short positions in EUR/USD and GBP/USD futures as the primary expression of this view. We expect continued pressure on US stock indices as capital flows from equities into safer assets like the dollar. During the onset of the conflict in Eastern Europe in 2025, major indices experienced a swift correction of nearly 10% in just over a month. To manage this downside risk, we are buying put options on the S&P 500 and Nasdaq 100. The Japanese Yen’s weakness, pushing USD/JPY toward 159, is a special situation driven by diverging central bank policy rather than typical risk flows. We see this powerful trend continuing and will avoid fighting it. Gold’s price, while elevated above $5,200, seems to have already priced in a significant amount of this risk, so we will be cautious about adding aggressive new long positions at these levels. Create your live VT Markets account and start trading now.
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