Renewed geopolitical risk is focusing attention on oil shipping routes after Iran again threatened to block the Strait of Bab al-Mandab, a corridor used for Saudi exports diverted away from the Strait of Hormuz. Brent has risen nearly 12% since last Friday, and a disruption at Bab al-Mandab would add further upward pressure to prices. Recent days have also seen an exchange of military strikes that has driven both oil and gas prices higher.<\/p>\n\n
Market fundamentals are also in view. Crude oil processing could increase again in July following the lifting of an export ban on oil products. In parallel, crude imports may rise this month as tankers that managed to transit the Strait of Hormuz in June arrive at Chinese ports.<\/p>\n\n
We are seeing Brent crude prices surge by nearly 12% over the last week due to heightened military tensions in the Middle East. With Iran threatening to block the critical Strait of Bab al-Mandab, through which nearly 8 million barrels of oil flow daily, volatility is set to spike. Derivative traders should prepare for rapid price swings as these geopolitical risks remain heavily priced into short-term options.<\/p>\n\n
At the same time, physical demand is tightening as Chinese imports are expected to climb this month. Shipping data shows a backlog of tankers that cleared the Strait of Hormuz in June is finally arriving at Chinese ports, boosting physical crude demand. This supply-demand mismatch historically pushes prompt-month futures contracts into a deep backwardation, favoring long calendar spreads.<\/p>\n\n
We recommend traders buy out-of-the-money call options on Brent to hedge against a sudden supply shock if the blockade materializes. Using bull call spreads can limit the premium cost while still capturing the upside of a potential run toward $95 a barrel. For those trading volatility, going long on implied volatility through straddles seems prudent as the market underestimates the tail risk of a total Red Sea shutdown.<\/p>\n\n
Looking back at previous Red Sea crises, similar shipping disruptions caused freight rates to double and oil prices to spike by 15% within weeks. If the Bab al-Mandab route is closed, rerouting tankers around Africa’s Cape of Good Hope will add 10 to 14 days to transit times. We expect this supply delay to heavily squeeze European sweet crude grades, making long positions on Brent-WTI spreads highly attractive.<\/p>\n\n\n\n