Iran has asked Yemen’s Houthi militia to be ready to close the Red Sea oil route if the United States strikes Iranian power infrastructure, according to Reuters. A source close to the Houthis said preparations to attack shipping are complete, with missiles and drones deployed near the Bab El-Mandeb Strait, the gateway to the Red Sea. The same source said representatives of Iran’s Islamic Revolutionary Guard Corps are already in Yemen and would control the decision on when to close the strait.
The US intensified attacks on Iran for a sixth consecutive day on Friday, while Iranian state media said a fresh wave of US strikes early on Thursday hit areas around Tehran for the first time in the current round, alongside other provinces. US Central Command said it fired on a tanker sailing towards Kharg Island, Iran’s largest oil export terminal, using a Hellfire missile after the vessel ignored multiple warnings. Tasnim reported explosions in Bandar Abbas, Qeshm and Ahvaz, and said the Bandar Abbas-Khorstan-Lar bridge was targeted, with power outages affecting Kahorstan; Fars reported loud explosions heard in Kuwait and also in Basra, while Qatar’s Defence Ministry said on Friday it intercepted a missile attack.
—Derivatives Market Implications and Volatility Strategies
With the direct threat to the Bab El-Mandeb Strait—which historically facilitates nearly 9 million barrels of oil and refined products per day—we are facing an unprecedented supply shock. In the coming weeks, derivative traders must brace for extreme market swings by focusing heavily on long-volatility strategies. We recommend buying out-of-the-money Brent crude call options, as the Cboe Crude Oil Volatility Index (OVX) historically spikes past 50 during major Middle East escalations, making premium-buying highly attractive.
Shipping Disruptions and Energy Supply Risks
The targeting of tankers and the potential closure of the Red Sea route will force shipping fleets to reroute around Africa’s Cape of Good Hope, adding up to 14 days to transit times. We expect this disruption to send maritime shipping costs skyrocketing, mirroring past regional crises where tanker charter rates surged by over 150% in a matter of days. To capitalize on this tight shipping capacity, we should establish long positions on Forward Freight Agreements (FFAs), especially for Suezmax and VLCC size tankers.
As US military strikes target Iranian infrastructure near Kharg Island, which handles roughly 90% of Iran’s 1.5 million barrels per day of crude exports, regional supply is in immediate jeopardy. We advise entering bull call spreads on global crude benchmarks to hedge against a sudden physical deficit in the market. Furthermore, we should closely monitor middle distillate crack spreads, as any escalation near Kuwait and Qatar will severely disrupt regional refining output and trigger a spike in diesel and jet fuel derivatives.
