US President Donald Trump said on Wednesday the US would not ease sanctions on Iran and would not unfreeze Iranian assets. He also said he was “not comfortable with Russia or China taking Iran’s stockpile of highly enriched uranium”, setting out a constraint on any potential handling of nuclear material under a future arrangement.
On the Strait of Hormuz, Trump said it would be open to everyone, with no party controlling it, and that it would open immediately. He added that any US-Iran deal would have to be “perfect”, and said there was an understanding with Iran.
Energy Market Impact and Oil Price Dynamics
We see these comments as injecting significant uncertainty back into the energy markets, effectively putting a floor under oil prices for the near future. The firm stance on sanctions removes the possibility of new Iranian supply coming online, a factor some in the market had been anticipating. This development signals that geopolitical risk is being underpriced.
The focus on the Strait of Hormuz is the most critical element for us, as about 21 million barrels of oil per day, representing over 20% of global consumption, pass through this chokepoint. While the president guarantees it will remain open, the heightened rhetoric itself increases the insurance and shipping risk premium. We saw Brent crude futures jump nearly 3% to over $92 a barrel within an hour of the statements, reflecting this immediate concern.
Volatility Positioning and Historical Context
In response, we are positioning for higher volatility by purchasing near-term call options on major oil ETFs and futures contracts. The CBOE Crude Oil Volatility Index (OVX) has already spiked 18%, suggesting the market is bracing for wider price swings in the coming weeks. This strategy allows us to profit from a potential price surge while defining our risk if the situation stabilizes unexpectedly.
Historically, periods of amplified U.S.-Iran tension, such as the drone incidents of 2019, have led to short, sharp spikes in oil prices followed by a gradual decline as immediate fears subside. However, with global inventories currently tighter than they were then, according to the latest EIA data, any actual disruption could have a more sustained impact. We are therefore weighting our positions toward instruments that mature in the next 45 to 60 days.
The conflicting mention of an “understanding” with Iran introduces a slight chance of a sudden de-escalation, which could trigger a sharp reversal in prices. To hedge against this, we are avoiding naked positions and instead using bull call spreads. This approach caps our potential upside but also significantly lowers our cost basis and protects against a sudden drop in volatility.
