WTI, the US crude oil benchmark, traded near $70.65 in early Asian hours on Monday, rising above $70.50. It reached its highest level since June 2025 after weekend military strikes by the US and Israel against Iran.
The American Petroleum Institute report is due later on Tuesday. Markets are also reacting to reports of expanded conflict, including drone and missile attacks on targets linked to Israel and the US in the United Arab Emirates, Bahrain, Qatar, Kuwait, and Jordan.
Geopolitical Risk Drives Oil Higher
CNBC reported on Sunday that Iran’s Supreme Leader Ayatollah Ali Khamenei was killed. The report said a group will run the country until a new leader is named.
Traders have priced in a high risk that the Strait of Hormuz could close. The route is used for about 20% of the world’s oil supply, raising supply disruption concerns.
OPEC+ said on Sunday it will increase crude production. The group agreed to raise output by 206,000 barrels per day (bpd), above what analysts had expected.
With WTI crude jumping to its highest price since we saw the highs of June 2025, we must prepare for extreme volatility. The conflict between the US, Israel, and Iran introduces a significant geopolitical risk premium that will inflate the price of options. We are seeing implied volatility in crude options surge, making long positions expensive but potentially very profitable if the conflict escalates.
The market is fixated on the Strait of Hormuz, the chokepoint for nearly 20% of the world’s daily oil consumption. While the modest OPEC+ output increase of 206,000 barrels per day is noted, it is viewed as entirely insufficient to calm fears of a major supply disruption if the strait is closed. This small production boost does little to change the immediate bullish outlook for crude prices.
Markets Brace For Supply Shock
We have seen this scenario before, most recently during the initial weeks of the Russia-Ukraine conflict in 2022 when Brent crude soared from $95 to over $130 a barrel. The current military strikes and the death of Iran’s Supreme Leader create a similar environment of fear and uncertainty. Traders should anticipate sharp, unpredictable price swings based on headlines over the coming days.
A key factor to consider is the limited capacity of safety nets to absorb a supply shock of this magnitude. The U.S. Strategic Petroleum Reserve (SPR) sits at historically low levels, near 360 million barrels, after significant drawdowns in previous years, limiting Washington’s ability to cool prices. For this reason, we will be watching Tuesday’s American Petroleum Institute report on inventories very closely for any signs of tightening domestic supply.
Given the high uncertainty, we believe buying long-dated call options or bull call spreads is a prudent strategy to gain upside exposure while defining risk. The elevated implied volatility makes selling naked options exceptionally dangerous, as a single headline could cause catastrophic losses. We are positioning for higher prices but are actively managing the cost of that view.
The leadership vacuum in Iran following Ayatollah Khamenei’s death ensures this will not be a short-term crisis. This creates a sustained period of instability that will likely keep a floor under oil prices for weeks, if not months. We expect any dips in price to be viewed by the market as buying opportunities until there is a clear de-escalation of the conflict.
