Oil exports through the Strait of Hormuz have been badly disrupted by the conflict. Bahrain, Kuwait, and Qatar are most affected, while Saudi Arabia and the United Arab Emirates can bypass the strait for limited quantities.
Higher global oil prices may partly offset lower export volumes for Saudi Arabia, the United Arab Emirates, and Oman. Reopening the Strait of Hormuz is a key factor for restoring flows.
Because hydrocarbons make up a large share of Gulf economies, a contraction in regional GDP is expected this year. Tourism, transport, and real estate are also under pressure.
Macro conditions in the Gulf remain strong, supported by large sovereign wealth funds. These buffers are expected to help economies absorb the shock.
In the short term, governments may redirect spending towards domestic support. This may slow foreign investment flows, as geopolitical risk remains elevated.
Given the ongoing disruption in the Strait of Hormuz, we see significant volatility in energy markets creating opportunities for derivative traders. Brent crude futures are now trading above $115 a barrel, reflecting a supply shock that has taken nearly 18 million barrels per day of export capacity offline. We believe using defined-risk option strategies, like bull call spreads on Brent futures, is prudent to capture further upside while capping potential losses.
The market is clearly distinguishing between Gulf economies, favoring those with the ability to partially bypass the strait. A viable strategy in the coming weeks is a pair trade, potentially going long the Saudi Tadawul All Share Index (TASI) futures against a short position in the Kuwait Premier Market Index. Data supports this view, as the Kuwaiti index has fallen over 15% since the beginning of 2026, while the TASI has been more resilient due to Saudi Arabia’s alternate export routes and the benefit of higher oil prices.
Implied volatility on crude oil options has surged to levels we haven’t seen in years, making outright long call or put positions very expensive. While selling this elevated premium is tempting, the risk of sudden escalation or de-escalation makes it a dangerous gamble. Therefore, we are focusing on spreads to reduce the impact of volatility decay and lower the cost of entry for our positions.
This situation feels more severe than the geopolitical risk premiums we saw flare up back in 2019 following attacks on Saudi oil facilities. Unlike that event, which was a temporary shock, this is a sustained physical disruption to a critical global chokepoint. The key variable remains the reopening of the strait, and any news on that front will likely cause a violent price movement in either direction.
