Asian share markets began the week mixed, with trading cautious due to the risk of wider tensions in the Middle East. US President Donald Trump said the US could destroy Iran’s civilian infrastructure, including power plants and bridges, if the Strait of Hormuz is not reopened by Tuesday.
Iran said transit through the Strait of Hormuz could resume if part of the revenue is used to compensate Iran for war-related damages. Ali Akbar Velayati, an adviser to Supreme Leader Mojtaba Khamenei, said the Bab el-Mandeb Strait in the Red Sea could be targeted, raising concerns about disruption to major trade routes.
Higher crude oil prices have continued amid geopolitical uncertainty, adding to inflation concerns. A strong US Nonfarm Payrolls report on Friday reduced expectations of near-term US interest rate cuts, and markets are now pricing a higher chance of a rise in borrowing costs by the end of this year.
Japan’s Nikkei 225 and South Korea’s Kospi were up about 1% at the time of writing. Indonesia’s IDX Composite and Malaysia’s KLCI were lower, with thinner liquidity linked to the Easter Monday holiday in many global markets.
We remember the tensions surrounding the Strait of Hormuz in 2025, which serve as a key reminder of how quickly geopolitics can impact markets. That situation, coupled with the Red Sea disruptions we’ve seen since, creates a foundation of persistent risk. This background of instability is why the CBOE Crude Oil Volatility Index (OVX) is currently elevated, trading near 35, indicating trader expectations for significant price swings.
Given this environment, a primary focus should be on crude oil derivatives. With Brent crude holding firm around $88 per barrel, purchasing long-dated call options offers a hedge against a sudden supply shock that could send prices over $100. This provides upside exposure while defining risk, a prudent strategy when tensions could flare up without warning.
This uncertainty extends to the broader equity markets, keeping the VIX hovering around a nervous level of 18. We saw how the market reacted to the strong NFP data last year, which pushed back rate cut expectations, and that sentiment lingers. Traders should consider buying protective put options on major indices like the S&P 500 to safeguard portfolios against a sudden risk-off move.
The Federal Reserve’s position remains a critical factor, as last year’s events helped solidify a higher-for-longer rate environment. With the latest March CPI data showing inflation remains sticky at 3.1%, the market is now pricing in less than a 40% chance of a rate cut before the third quarter. This outlook supports strategies using interest rate futures to bet on rates remaining at their current cycle highs through the summer.
This dynamic continues to strengthen the US dollar, which acts as a safe haven during global uncertainty. The combination of geopolitical risk and a hawkish Fed makes long positions on the dollar attractive. We can express this view through call options on the U.S. Dollar Index (DXY) or by shorting currencies sensitive to energy prices and risk sentiment.
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