Gulf countries are considering new oil pipeline projects to bypass the Strait of Hormuz, amid concerns about Iran’s potential control of the waterway, the Financial Times reported on Thursday.
Officials and industry executives said pipelines could reduce Gulf states’ exposure to disruption in the strait, although the projects would be costly, politically complex, and take years to complete.
Market Reaction And Risk Premium
At the time of writing, West Texas Intermediate (WTI) was up 6.10% on the day at $99.96.
The discussion of new pipelines to bypass the Strait of Hormuz has pushed WTI crude towards the $100 mark, reintroducing a significant geopolitical risk premium into the market. This reflects the deep-seated fear of a supply disruption, meaning we should anticipate heightened volatility in the coming weeks. Traders should therefore consider strategies that profit from price swings, not just direction.
The market is sensitive because over 20% of the world’s daily oil supply, or nearly 21 million barrels, transits this narrow waterway. We are seeing the CBOE Crude Oil Volatility Index (OVX) already climb above 45, its highest level in 2026, which makes buying options like straddles more attractive. This is a direct play on the expectation of large price movements in either direction.
We recall a similar, though less severe, market reaction in the third quarter of 2025 when naval exercises briefly disrupted tanker schedules. That event showed how quickly the risk premium can fade once tensions ease. For those betting this is a temporary scare, selling out-of-the-money call options on near-term futures could capture premium decay if the situation calms.
Futures Curve And Hedging
This price spike has likely pushed the front end of the futures curve into a steeper backwardation, where near-term prices are much higher than future ones. This creates opportunities for calendar spread trades, which could profit as the curve flattens if the immediate threat subsides. Such a strategy allows for profiting from a return to normal market conditions without betting on the outright direction of the oil price.
The pipeline news is especially potent following the brief seizure of a commercial vessel by naval forces in January 2026, which still weighs on insurer sentiment. Given this backdrop, purchasing long-dated call options remains a prudent hedge for any portfolio exposed to energy prices. This provides upside protection against a major escalation while limiting the initial capital at risk.
