WTI, the US crude benchmark, traded around $79.00 in early European hours on Friday and was set for its biggest weekly advance since April, as Middle East tensions raised concerns over potential supply disruption. The BBC reported that US Central Command (CENTCOM) launched a fresh wave of strikes on Iran, hitting targets including defence sites, and the US military said the action aimed to “further degrade Iranian military capabilities”, adding it had boarded a vessel as part of its blockade of the Strait of Hormuz.
Iran’s Islamic Revolutionary Guards Corps (IRGC) said no oil or gas would be exported through the Strait of Hormuz while US attacks continue. Separately, Fars News said very loud explosions were heard in Kuwait, with the sound also reported in Basra, while Qatar’s Defence Ministry said on Friday that the country intercepted a missile attack. International Energy Agency (IEA) Executive Director Fatih Birol said on Thursday that global energy security is at risk if the Strait of Hormuz does not open within weeks.
Geopolitical Tensions Threaten Global Oil Supply
With WTI crude hovering near $79.00 amidst escalations in the Middle East, we are facing an immediate threat to global oil supplies. The potential closure of the Strait of Hormuz, which typically channels over 20 million barrels of oil per day—roughly 20% of global petroleum liquid consumption—could severely disrupt global energy flows. We believe derivative traders must position themselves for extreme upward price shocks as this geopolitical standoff intensifies in the coming weeks.
Strategic Trading Approaches Amid Volatility
To navigate this high-risk environment, we recommend focusing on long call options and bullish call spreads on WTI and Brent crude. Historically, geopolitical threats to key shipping lanes cause the CBOE Crude Oil Volatility Index (OVX) to spike by over 50% in a matter of days. Buying call options now, before implied volatility rises to prohibitive levels, offers the best risk-reward ratio for traders looking to capitalize on a sudden supply squeeze.
We also expect the Brent-WTI spread to widen in the coming weeks as Middle Eastern supply disruptions directly impact international benchmarks. Traders can exploit this by entering long Brent and short WTI spread positions, targeting a widening gap which historically expands during Persian Gulf conflicts. However, we must maintain strict stop-loss orders because any sudden diplomatic breakthrough could quickly crush these geopolitical premiums.
