Oil markets remain exposed to the Iran and Middle East conflict, with movement through the Strait of Hormuz still constrained. Some tankers are testing an alternative southern route closer to Oman rather than the northern side near Iran.
Reports indicate tolls are paid through Qeshm Island on the northern route. Data suggests more tankers have passed through in recent days, but overall volumes remain well below pre-conflict levels.
Strait Transit Patterns
The recent increase in transit is mainly west to east, meaning more ships are exiting the Strait than entering it. This points to uneven flows rather than a full return to two-way traffic.
Iran has also announced that Iraq is allowed to ship oil out via the Strait of Hormuz. Taken at face value, this could add 3mb/day of oil to the market.
Immediate effects may be limited by insurance costs, tanker availability, and timing. There is also uncertainty over how Iran defines “Iraq oil”.
The article was created with the help of an artificial intelligence tool and reviewed by an editor.
Market Sensitivity And Positioning
With Brent crude futures hovering near $98 a barrel, we see that oil markets remain highly sensitive to the ongoing conflict in the Middle East. The constraints on the Strait of Hormuz continue to add a significant risk premium to prices. This is reflected in the oil volatility index (OVX), which has been elevated above 45 for the past month, indicating trader uncertainty.
We are cautious about the outlook for Asian currencies and other risk assets given their exposure to high energy costs. Since the initial escalation of the conflict last year in 2025, currencies like the Japanese Yen and South Korean Won have underperformed due to their nations’ heavy reliance on imported oil. Data from March 2026 shows Japan’s energy import bill rose by 15% year-over-year, directly impacting its trade balance.
However, we are closely watching reports of tankers testing an alternative southern route near Oman to exit the Strait. While overall traffic is still down roughly 25% from pre-conflict levels, satellite tracking data from the last two weeks confirms a small but steady increase in tankers successfully making passage. This development, though minor, suggests a potential easing of the physical bottleneck if it proves sustainable.
Furthermore, Iran’s statement that it will allow Iraqi oil to be shipped via the Strait presents a major, albeit uncertain, potential for new supply. If this were to add even a fraction of the theoretical 3 million barrels per day, it could dramatically shift market sentiment. For now, a lack of clarity on insurance, tanker availability, and what constitutes “Iraqi oil” keeps this as a speculative factor.
For the coming weeks, we believe buying long-dated put options on WTI or Brent crude futures is a prudent strategy to position for a potential sharp drop in price should these supply improvements materialize. The elevated volatility makes these options expensive, but they offer a defined-risk way to capitalize on a sudden de-escalation or resolution to the shipping crisis. Given the sharp price spikes we saw in late 2025, holding some protection against a positive supply shock seems logical.
Alternatively, for those expecting a significant price move in either direction, using straddles could be effective. This involves buying both a call and a put option with the same strike price and expiration date, a strategy that profits if the price of oil makes a large move up or down. This approach is a pure play on the high uncertainty, removing the need to predict the direction of the next major headline.
