European Commissioner Ursula von der Leyen and President Trump talked about increasing economic pressure on Russia. They proposed accelerating the phase-out of Russian fossil imports as part of additional measures.
President Trump earlier suggested that Ukrainian President Zelenskyy might need to negotiate to end the ongoing conflict. This comment hinted at potential involvement in discussions between the leaders.
Phase Out of Russian Fossil Fuels
We see the renewed discussion of an accelerated phase-out of Russian fossil fuels as directly supportive of energy prices. This comes at a critical time as Europe heads into the winter heating season. Traders should consider that any credible threat to the remaining Russian supply will likely cause a spike in European natural gas and Brent crude futures.
Looking back at the market reaction in 2022, we remember Dutch TTF gas futures surging over €300/MWh on supply fears, a stark reminder of the market’s sensitivity. While European gas storage is currently reported at a healthy 92% full, the latest Eurostat data from July 2025 still showed Russian LNG accounting for nearly 10% of the bloc’s gas imports. Taking this marginal supply offline would introduce significant upside risk, making call options on winter 2025/2026 gas contracts a potentially effective hedge.
However, we must weigh this against the comments regarding a potential peace deal in Ukraine. An end to the conflict would immediately begin to unwind the geopolitical risk premium that has been baked into crude oil prices for over three years. This scenario would be decidedly bearish for oil and could send prices tumbling as supply disruption fears evaporate.
Conflicting Signals in Energy Markets
These two developments are pulling the energy markets in completely opposite directions, creating a textbook environment for a surge in volatility. The Cboe Crude Oil Volatility Index (OVX), which has been hovering around a relatively calm 35, will likely see a significant bid in the coming days. The conflicting signals make directional bets risky, but positions that profit from a large price swing are now much more attractive.
Therefore, we believe the most prudent response is to buy volatility in the energy sector. We are looking at implementing long straddles on near-term Brent crude options, which would profit from a significant price move in either direction. This strategy allows us to capitalize on the rising uncertainty without having to correctly predict whether supply cuts or peace talks will dominate the narrative.
Beyond energy, a potential end to the war has major implications for European equities and the defense sector. We saw shares in companies like Germany’s Rheinmetall AG rise over 400% since the conflict began in 2022, and an armistice would trigger a rapid repricing of these stocks. Traders should look at buying put options on major European defense contractors and simultaneously consider call options on broad European indices like the Euro Stoxx 50, which would benefit from reduced geopolitical tension and reconstruction opportunities.
