US military officials are drawing up new plans to target Iran’s capabilities in the Strait of Hormuz if the current ceasefire fails, CNN reported on Thursday. The plans include “dynamic targeting” focused on assets around the Strait of Hormuz, the southern Arabian Gulf and the Gulf of Oman.
At the time of writing, West Texas Intermediate (WTI) was up 3.80% on the day at $95.45. Brent Crude Oil is a North Sea grade used as a benchmark for international prices and serves as a reference for about two-thirds of globally traded oil supplies.
Key Drivers Of Brent Pricing
Brent prices are driven mainly by supply and demand, with global growth affecting demand and conflicts, sanctions and political instability affecting supply. OPEC, a group of 12 oil-producing nations, sets production quotas at twice-yearly meetings, while OPEC+ adds ten non-OPEC members, including Russia.
US Dollar moves can affect oil prices because oil is traded in US Dollars. Weekly inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA) can shift prices; their results are within 1% of each other 75% of the time, and the EIA is a government agency.
With reports of the US developing plans targeting Iran’s Hormuz defenses, the geopolitical risk premium in crude oil is increasing sharply. A significant portion of the world’s oil supply transits the Strait of Hormuz, so any potential for conflict directly threatens a major supply chokepoint. This is why we have seen Brent crude surge past $101 per barrel this week, reacting to the heightened uncertainty.
Traders should prepare for a period of significant volatility over the next few weeks. The CBOE Crude Oil Volatility Index (OVX) has already risen to over 45, its highest point this year, showing the market is pricing in the possibility of large and sudden price swings. We believe that buying call options on crude futures is a viable strategy to capitalize on potential price spikes while defining and limiting downside risk.
This tension is occurring within an already tight market, which could amplify any price movements. OPEC+ held production quotas steady in its early April meeting, and the latest Energy Information Administration report showed a larger-than-expected inventory draw of 3.1 million barrels. This fundamental backdrop of constrained supply and solid demand provides strong underlying support for oil prices.
Historical Signals And Market Context
We have seen this scenario play out before, and it serves as a valuable reference. Looking back at 2025 from our current perspective, we saw how Houthi attacks in the Red Sea disrupted shipping and added a significant premium to oil prices for months. The tanker incidents in this same region back in 2019 also caused a nearly 20% single-day price jump, showing how quickly these situations can escalate.
Given that Brent crude is more sensitive to Middle Eastern supply disruptions than West Texas Intermediate, we expect the spread between the two benchmarks to widen. Traders could explore strategies that profit from this differential. Using option spreads instead of outright futures contracts may also be prudent to manage costs and protect against a sudden peaceful resolution that would erase the risk premium.
