Strait Of Hormuz Risk Outlook
Reports said Iran was drafting a protocol with Oman to manage Strait of Hormuz traffic. This was linked to a lower risk of a full shutdown, but it still implied managed restrictions rather than a full reopening. President Trump threatened to destroy Iran’s power plants and bridges unless the Strait of Hormuz reopens by a Tuesday deadline. A base case forecast was for Brent to ease to USD85–70 over 6–12 months. Looking back at the US-Iran tensions in 2025, we saw how quickly hopes for de-escalation proved to be premature. That period, which pushed Brent crude near $119 a barrel, serves as a key lesson for the market’s current volatility. The situation then was one of controlled disruption, not a true resolution, a pattern we may be seeing again. With Brent currently trading around $92 a barrel, the market is pricing in renewed risks from the recent drone attacks on Saudi Arabian oil facilities. The CBOE Crude Oil Volatility Index (OVX) has climbed to 48, its highest level this year, reflecting a growing unease among traders. This echoes the uncertainty we felt during the Strait of Hormuz traffic disputes last year.Hedging And Spread Trade Setup
This environment suggests that simply holding long positions is risky, and buying protection is prudent. We are seeing increased buying of out-of-the-money call options, particularly for June and July contracts, as a hedge against a sudden supply shock. This strategy is a direct response to the lesson from 2025, where those who were unprepared for sustained tension faced significant losses. The recent decision by OPEC+ to hold production levels steady through the third quarter further tightens the supply outlook. This makes calendar spread trades, such as buying the front-month contract while selling a later-dated one, increasingly attractive to capture the premium on near-term supply fears. Last year’s prolonged disruption taught us that these structural deficits can persist longer than headlines suggest. Create your live VT Markets account and start trading now.
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