Insights 
VT 
Rising geopolitical tensions have led to the oil market factoring in a higher risk premium. Following Israel’s strike on Iran, the market’s uncertainty has grown. Iran, producing about 3.3 million barrels per day and exporting 1.7 million, could see disruptions if tensions continue to rise.
The Strait of Hormuz may also experience instability, adding further pressure to oil prices. Recent explosions and air-defence activity were reported over Tehran amid continued Israeli actions.
Imminent Israeli Strike
On Friday, 13 June, there were reports of an imminent Israeli strike, which was followed by explosions in Tehran. Israel has conducted a pre-emptive attack, causing oil prices to climb and the Yen to strengthen. Israel claims to have targeted Iran’s main nuclear enrichment facility in Natanz.
There are unconfirmed reports of Iranian jet and missile activities. The US has issued warnings to Iran against targeting its interests or personnel. Meanwhile, additional Israeli strikes on Iran appear to have been launched.
US President Trump convened a National Security Council meeting on Friday. Iran has stated that Israel and the US will face severe consequences.
We’ve just seen how rising instability in the Middle East is having a measurable and immediate effect on global markets. Oil prices are reacting swiftly, pricing in added supply risk. The broader tone is one of heightened alertness—fuelled by both confirmed and unverified events.
To put the current picture into focus, Iran is responsible for a large portion of the world’s oil exports. Any credible threat to that output, or more broadly to shipping routes such as the Strait of Hormuz, alters cost structures across multiple sectors that depend on steady energy inputs. Tensions have already prompted a risk repricing. Traders have begun to factor in not just the direct disruption to supply, but also the probable second-order consequences: sanctions, military escalation, and possible retaliation against commercial infrastructure. We expect thinner liquidity and wider spreads in energy-linked contracts as a result.
From a macro view, it’s not only oil that’s responding. Following the military developments late last week, both the Yen and gold recorded upward moves. Strength in the Yen underlines a shift toward perceived safe-haven assets, especially in times of military fracturing and geopolitical turmoil. Institutional players are clearly preparing for further volatility, and we’ve seen that correspond with positioning changes in futures tied to energy and metals.
Market Reactions to Military Escalation
Mild strength in the dollar earlier in the week has started to reverse slightly, as markets digest the implications of potential wider military engagement. The reaction function of currencies in this situation is telling: pricing risk means reassessing exposure to the region, which includes energy-dependant economies and those with trade ties to both sides of the conflict. With some funds already rotating out of risk, dollar-hedging activity via index puts has begun to show up in volume data.
Net positioning among managed money suggests there’s already been some unwinding of bearish oil bets. We’ve noticed some participants taking out upside protection via call spreads stretching into late Q3, anticipating longer-term supply disruptions. This may reflect a recalibration that sees volatility persisting rather than peaking quickly and fading.
We would not expect price action to remain stable in the short term. Intraday swings on even partial headlines are likely. That’s especially true if additional military assets are deployed closer to shipping lanes or energy infrastructure. At the same time, equity index volatility remains low by historical standards, which implies some traders may still be underestimating the systematic knock-on effect if energy prices remain dislocated.
In fixed income, yields have edged lower, tracking risk aversion. That move may be short-lived. Should tensions escalate further, commodity-driven inflation concerns could resurface quickly. That risk is starting to re-enter option markets, where skew is adjusting in anticipation of energy-led inflation prints.
With trades becoming extremely sensitive to headline risk, risk management flexibility is essential. Scaling into positions too early leaves exposure vulnerable to false starts—or worse, faulty assumptions about the sequence of events. We’re preparing for a pattern of more frequent, irregular updates to key macro data assumptions based on shifting military signals.
From a strategy angle, curve trades in oil remain a cleaner way to express near-term delivery risk. Meanwhile, volatility has been relatively muted on longer-dated contracts; that discrepancy is likely to adjust as longer-term disruption becomes less of an outside possibility.
Taking cues from official responses will be essential. The convening of the National Security Council suggests state-level coordination is now in motion. That typically precedes broader military planning or joint actions, both of which affect the probability distribution of supply interruptions.
For those of us watching the derivatives market, contract structure is especially sensitive right now. Proxies for cross-commodity sentiment—such as freight rates and refining margins—also warrant continuous monitoring. Where these begin to dislocate, we’ve seen rapid repricing in derivative books, often catching those caught mid-roll.
To stay ahead, flexibility and response time will matter more than a long view. When physical flows are threatened, derivatives often move first. And they can move quickly.
