TD Securities strategists Ryan McKay and Daniel Ghali set out how Middle East tensions and Iran-related outcomes could reprice oil risks. Using 75 years of geopolitical risk premia, they outline scenarios ranging from extra supply to Brent moving above $100–120/bbl with ongoing risk premia.
In a “New Deal”, successful US-Iran talks could ease sanctions and shift commodity flows, leading to lower energy prices. In a “Clean Break”, a fast intervention leading to regime change could trigger an initial price move, then risk premia could fade if energy infrastructure is not damaged.
Scenario Framework And Potential Oil Repricing
In “Unilateral Action”, Iran or Israel acts alone, raising concerns about the Strait of Hormuz or a wider war. TD Securities expects an initial spike of $5–10/bbl, similar to moves seen around the Twelve Day War.
In an “Expanded US Conflict”, a broader US-Iran conflict raises regime survival risks and potential Strait of Hormuz disruption, with spikes of +$15/bbl even if disruption is brief. “Domestic Action” that hits Iranian energy infrastructure could cut supply and exports, with a +$10/bbl spike.
In “Regional escalation”, wider conflict could threaten infrastructure beyond Iran, adding at least +$25/bbl and pushing prices above $100–120/bbl.
Given the recent diplomatic failures in Geneva and skirmishes near the Strait of Hormuz, the market is pricing in significant uncertainty. Brent crude is currently hovering around $88 per barrel, and we’ve seen the CBOE Crude Oil Volatility Index (OVX) climb to 35, its highest level since last fall. This setup demands strategies that account for a wide range of outcomes in the coming weeks.
Options Positioning For A Wide Range Of Outcomes
We see a possibility of a “New Deal” with Iran, which would bring a substantial amount of oil back to the market very quickly. To prepare for this bearish scenario, purchasing out-of-the-money puts on April or May contracts could serve as an effective, low-cost hedge. Based on tanker-tracking data from late 2025, we estimate Iran could ramp up exports by over 1.5 million barrels per day within a quarter, which would overwhelm current demand forecasts.
Conversely, the risk of “Unilateral Action” between Iran or its proxies and Israel remains acute, which could cause a sudden price spike. We believe long call spreads are a prudent way to position for a potential $5 to $10 jump without taking on unlimited risk. This is similar to the price action we observed in October 2025, when a temporary disruption in the Red Sea caused a sharp but short-lived rally before fundamentals took over again.
A more extreme “Regional Escalation” that threatens energy infrastructure beyond Iran would trigger a major price event, pushing Brent well above $100 per barrel. In this case, we would look to own far out-of-the-money calls, such as the $110 or $120 strikes, as a lottery ticket-style trade with massive upside. With nearly 21 million barrels of oil passing through the Strait of Hormuz daily according to the latest EIA figures, any hint of a prolonged closure would dwarf the supply shocks we saw back in 2022.
With the direction of the next major move so uncertain, strategies that benefit from volatility itself are attractive. A long straddle, which involves buying both a call and a put option at the same strike price, is positioned to profit from a significant price move in either direction. This approach is well-suited for the current environment, where the outcome could just as easily be a supply glut from a new deal or a supply shock from a new conflict.
