CBS News reported, citing multiple sources, that the United States and Israel may undertake a large campaign against Iran, with Iran’s energy infrastructure described as a potential target set. The timeframe was characterised as “over the weekend” ahead of next week’s Asian market open. The report said US sources indicated Israel had been notified and was coordinating with the United States, while adding that the US president had not yet issued final orders for any strikes.
The same report quoted an Israeli official as saying Israel was unaware of any decision to restart full military operations and had not been asked to join military action against Iran. CBS News also said the military strike plan was discussed during President Trump’s cabinet meeting at Camp David on Friday, and that some White House aides focused on politics opposed the plan. Two sources said the energy infrastructure in question would include power plants and refineries as main targets.
Energy Market Volatility and Trading Strategies
We must prepare for an immediate and unprecedented surge in energy volatility as the threat of joint military action against Iran’s energy infrastructure looms over this weekend. Historically, even minor disruptions in the Middle East send shockwaves through energy markets, much like the 2019 Abqaiq attacks in Saudi Arabia which caused Brent crude to spike nearly 20% in a single day. Given that Iran produces over 3.2 million barrels of oil per day, any successful strike on its refineries could instantly jeopardize up to 3% of global supply.
To position ourselves for the upcoming Asian market open, we recommend buying out-of-the-money Brent and WTI crude call options with short-term expirations. Implied volatility in the energy sector is currently trading at relatively modest levels, making these options an affordable hedge against a massive supply shock. If strikes occur over the weekend, we expect the CBOE Crude Oil Volatility Index (OVX) to double, allowing traders to profit from both the underlying price move and the rapid expansion of option premiums.
Hedging Equity Portfolios and Monitoring Crack Spreads
We should also hedge our broader equity portfolios against a sharp market downturn by purchasing CBOE Volatility Index (VIX) call options. A geopolitical escalation of this scale historically triggers an immediate flight to safety, dragging down global equities while boosting safe-haven assets like gold and the US dollar. Implementing long straddles on energy-heavy exchange-traded funds like the Energy Select Sector SPDR Fund (XLE) will also allow us to capture massive price swings regardless of the initial market confusion.
In the coming weeks, we must closely monitor crack spreads, which measure the price difference between crude oil and refined products like gasoline and diesel. Since the targeted infrastructure specifically includes refineries and power plants, the supply of refined products could tighten far more quickly than crude feedstock. Going long on gasoline futures options while shorting crude feedstock options is a highly effective spread trade we can deploy to exploit this specific supply bottleneck.
