Sporadic fighting continued in the Middle East, including in Lebanon, killing hundreds of people, Reuters reported on Thursday. Iranian officials said this breached the terms of a ceasefire that was less than a day old.
Iran’s lead negotiator and parliament speaker, Mohammed Bager Qalibaf, said it would be “unreasonable” to continue talks with the United States on a permanent peace deal under these conditions. Iran’s Islamic Revolutionary Guard Corps said shipping through the Strait of Hormuz stopped after Israel expanded strikes in Lebanon.
Ceasefire Negotiations Breakdown
The White House said the United States would still hold direct talks with Iran despite the ongoing clashes. US Vice President JD Vance is due to lead a US delegation to Islamabad, with the first round of talks set for Saturday morning local time.
CNN reported that Israel struck more than 100 sites across Lebanon on Wednesday. The Israel Defense Forces said it was the largest coordinated set of strikes on Lebanon since the war began.
West Texas Intermediate rose 0.53% to $91.40 at the time of writing.
We recall the significant tensions in late 2025 when sporadic fighting drew threats from Iran and intensified Israeli strikes on Lebanon. WTI crude oil was trading at $91.40, and markets were on edge over a potential shutdown of the Strait of Hormuz. The planned US-Iran talks in Islamabad, led by Vice President Vance, created a highly uncertain environment for energy prices.
Oil Market Volatility Outlook
Following those events, oil prices experienced extreme volatility, with WTI briefly spiking to over $115 per barrel in early 2026 before settling back down. The CBOE Crude Oil Volatility Index (OVX) hit multi-year highs, reflecting the market’s fear, which shows how quickly risk premiums can be priced in. Those weeks taught us that even the threat of disruption is enough to cause significant price swings.
The IRGC’s claim to have stopped shipping never materialized into a full-scale, prolonged closure of the Strait of Hormuz. However, the threats alone were enough to cause war risk insurance premiums for oil tankers to surge, adding a tangible cost to every barrel transiting the critical waterway. About 21% of the world’s daily oil consumption, or roughly 21 million barrels, passes through the strait, making its security non-negotiable for stable prices.
The talks in Islamabad eventually led to a fragile de-escalation, which is why we see prices today hovering in the mid-$80s instead of triple digits. That calm appears to be fraying, with compliance to the temporary agreement now being questioned. This brings the memory of late 2025’s volatility back into sharp focus for traders.
Given the potential for another flare-up, traders should consider buying long-dated call options to hedge against a sudden price spike in the coming weeks. Bull call spreads could be used to lower the upfront cost of positioning for this upside risk. The market demonstrated last year how quickly it can react, and being unprepared for a repeat could be a costly mistake.
The key takeaway from the 2025 events is that the geopolitical risk premium is now more sensitive than it has been in years. Small escalations in the Middle East can now have an outsized impact on oil prices. We should therefore expect volatility to remain elevated and plan our strategies accordingly.
