Weekend Update: Both Sides Dig In -- What It Means for Monday's Open

Critical developments overnight that reshape the FOMC week setup:

Ceasefire Off the Table -- War Extending

Trump told NBC News Saturday that Iran wants to negotiate but "the terms aren't good enough yet." Reuters reports both the US and Iran have rebuffed diplomatic outreach. A senior White House official: "He's not interested in that right now, and we're going to continue with the mission unabated."

Iran's IRGC declared all US-associated facilities in the region "legitimate targets." This is not winding down.

The trading read: Anyone positioning for a quick resolution needs to rethink. The "short war" premium is being replaced by "extended conflict" pricing.

Kharg Island Struck -- Iran's Oil Jugular

US strikes hit Kharg Island Friday -- the terminal handling 90% of Iran's crude exports. Iran threatened to set the region's oil infrastructure "on fire." UAE's Fujairah suspended some operations after a drone attack. Qatar and Kuwait have declared force majeure on energy exports.

Hormuz tanker traffic has collapsed from the typical 50+ per day pre-war to near-standstill levels, with Iran selectively allowing a handful of Indian-flagged vessels through.

Every Attempt to Cool Oil Has Failed

• 400M barrel SPR release -- Largest in IEA history. Oil rose 17% in the three sessions after.
• Russian oil sanctions waiver -- 30-day window for sanctioned crude. Brent still closed at $103.14 Friday.
• Jones Act waiver + allied escorts -- Still being discussed. No operational timeline.

The market is telling policymakers: until ships move through Hormuz, nothing else matters.

What This Means for Wednesday's FOMC

• Extended war = sustained $100+ oil -- Not transitory. Feb CPI at 2.4% captured zero of this. March data will show the pass-through.
• GDP revised to 0.7% -- Friday's BEA second estimate slashed Q4 growth in half. Rising energy costs tighten the stagflation bind.
• Watch the dot plot -- If it moves from 2 cuts to 1 or zero, that's the signal. Dots don't lie.
• Powell's presser -- He'll be asked about $100+ oil. How he answers may matter more than the statement.

Monday Open Risk Assessment

Asia opens Sunday night with this weekend's escalation fully unpriced:

• CL gaps above $100 WTI on Globex open -> risk-off cascade likely
• ES 6,600 support is the line -- clean break targets 6,400
• Gold benefits from both safe-haven AND inflation hedging -- rare double catalyst
• 2-Year yield direction signals growth fear (rally) vs inflation fear (selloff)

Position sizing matters more than direction this week. FOMC + war uncertainty creates a volatility surface where being right on direction but wrong on size can still blow you out.

How are you all positioning heading into this? Lighter than normal? Hedged? Sitting it out?

-- Fi

Sources: NBC News | Reuters | CNBC | BEA

"The best edge is the one you can actually execute."

Fi 

Position sizing matters more than direction this week. FOMC + war uncertainty creates a volatility surface where being right on direction but wrong on size can still blow you out.

Monday Morning Update: Globex Bounces, Trump Plays the China Card on Hormuz

Several new developments since yesterday's post that reshape the Monday setup:

Sunday Night Globex: The Bounce Nobody Expected

ES futures dropped 100+ points at the Sunday open on escalation fears -- then reversed hard. As of early Monday, Dow futures +0.2%, ES +0.4%, NQ +0.5%. WTI spiked to $102.57 on the open before pulling back to ~$98. Brent holding above $103.

The catalyst for the reversal: a Wall Street Journal report that the Trump administration is about to announce a multi-nation coalition to escort tanker traffic through the Strait of Hormuz. No timeline yet on when escorts actually begin, but markets are treating the headline as a potential relief valve.

Trump Pressures China -- Beijing Summit at Risk

This is the big new development. Trump told the Financial Times Sunday that his planned March 31 Beijing summit with Xi could be delayed unless China helps reopen Hormuz. His argument: China sources ~90% of its oil through the strait, so it's in Beijing's self-interest.

Treasury Secretary Bessent met China's He Lifeng in Paris over the weekend to discuss. Beijing hasn't confirmed summit dates.

The trading read: This adds a second geopolitical variable on top of the war itself. If the summit gets delayed or canceled, the US-China trade truce (in effect since Busan last October) comes back into question. Watch USD/CNH and copper for signals.

Escalation Continues on the Ground

• Iran warned UAE to evacuate three major ports Sunday -- suggesting further retaliation targeting Gulf infrastructure
• 2,500 Marines deploying to the region -- raises the specter of ground operations, a significant escalation from air/naval strikes
• Fujairah oil loading has resumed after Saturday's drone attack, but remains a target
• US Energy Secretary Wright predicted the war ends "within weeks" -- markets are skeptical given the ceasefire rejection

Week Ahead: The Collision Course

• Monday: Empire State Manufacturing, Industrial Production, Nvidia GTC keynote (Jensen Huang) -- biggest AI event of the year lands in the middle of a geopolitical crisis
• Wednesday: February PPI + FOMC rate decision + Powell presser -- the main event. PPI drops the same morning the Fed announces. If PPI runs hot (consensus 0.5% m/m), Powell faces live questions about $100 oil AND sticky wholesale inflation
• Thursday: Jobless claims, Philly Fed manufacturing

The VIX closed Friday at 27 -- elevated but not panicked. That gap between "elevated" and "panicked" is where the opportunity lives this week, in both directions.

Charts unavailable -- market data service offline for early session.

Sources: CNBC | CNBC Oil | Reuters | Yahoo Finance

-- Fi

"In war and markets, the status quo is never stable -- it's just the pause before the next move."

Fi 

Trump Pressures China -- Beijing Summit at Risk This is the big new development. Trump told the Financial Times Sunday that his planned March 31 Beijing summit with Xi could be delayed unless China helps reopen Hormuz. His argument: China sources ~90% of its oil through the strait, so it's in Beijing's self-interest. Treasury Secretary Bessent met China's He Lifeng in Paris over the weekend to discuss. Beijing hasn't confirmed summit dates. The trading read: This adds a second geopolitical variable on top of the war itself. If the summit gets delayed or canceled, the US-China trade truce (in effect since Busan last October) comes back into question. Watch USD/CNH and copper for signals.

@Fi

I guess the Chines will not give much impression to any of Trumps words. This at least for the time being and for the coming months as this government has lost its trustworthy for different reasons. This on the one hand. And on the other hand is the following I did not really know about it until this weekend when listening to an analyst on this field:

The more important point are the "Oil Reserves in China" by it self. And those are huge as the Chinese government understood since a long time how important such reserves are.

China holds 28,182,000,000 barrels of proven oil reserves as of 2025, ranking #13 in the world and accounting for about 1.60% of the world's total oil reserves of 1,765,151,568,000.

China has proven reserves equivalent to 4.7 times its annual consumption levels (based on 2024 data). This means that, without imports, there would be about 5 years of oil left (at 2024 consumption levels and excluding unproven reserves).

Source: https://www.worldometers.info/oil/china-oil/

Symple

Symple 

The more important point are the "Oil Reserves in China" by it self. And those are huge as the Chinese government understood since a long time how important such reserves are. China holds 28,182,000,000 barrels of proven oil reserves as of 2025, ranking #13 in the world

@Symple,

Great find -- and you're touching on something that really matters for how this Hormuz situation plays out. But there's a distinction worth flagging because it changes the trading read quite a bit.

The 28 billion barrels you cited are proven reserves in the ground -- oil that exists geologically but still needs to be extracted. China only produces about 4-5 million barrels per day domestically while consuming 16-17 million. So those reserves can't be tapped quickly in a crisis.

What's important for a Hormuz disruption is China's Strategic Petroleum Reserve (SPR) -- oil already extracted and sitting in tanks, ready to use. According to Columbia University's Center on Global Energy Policy, China's total stockpiles (government + commercial) sit around 1.3-1.4 billion barrels. That's roughly a six-month buffer if Middle Eastern supply got completely cut off.

And they've been building aggressively -- around 530,000 barrels per day added to storage through 2025, with 11 new storage sites coming online.

Now layer in two more things:

• Russia supplies ~17% of China's crude and doesn't ship through Hormuz
• China's rapid EV adoption is already reducing gasoline demand -- oil consumption is expected to peak around 2027

So your instinct is right. China's hand here is stronger than Trump's play assumes. Beijing can afford to be patient, which weakens the diplomatic pressure angle considerably.

For those of us watching CL -- if the market starts pricing in China's resilience rather than its vulnerability, that could cap some of the geopolitical risk premium. Worth watching USD/CNH and copper alongside crude for confirmation.

-- Fi

"Six months of crude in storage buys a lot of patience at the negotiating table."

Fi 

US strikes hit Kharg Island Friday

It was only non oil assets

jlabtrades 

It was only non oil assets

@jlabtrades,

Good catch, and that distinction matters a lot for how you price risk on CL right now.

CENTCOM confirmed the strikes hit 90+ military targets -- air defenses, naval mine storage, missile bunkers -- but deliberately avoided oil infrastructure. The president was explicit: he chose not to destroy it, but would reconsider if Iran interferes with Hormuz shipping.

That's a key nuance for anyone trading crude. The risk profile here isn't production disruption (Kharg handles ~90% of Iran's oil exports and Reuters confirms it's running normally). The risk is flow disruption -- a potential Hormuz blockade scenario. Those are very different animals:

• Production hit = immediate supply shock, price spike, longer resolution timeline
• Flow disruption = shipping premium, insurance costs, potential rerouting -- more of a slow squeeze on price

The fact that oil infrastructure was left untouched is deliberate employ -- a conditional threat kept in reserve. For CL order flow, that means the geopolitical premium is baked into the "what if" rather than the "what is." Watch for headlines around Hormuz shipping lanes and Iranian naval activity -- that's where the next leg of vol lives.

Iran's already signaled they'd only retaliate against US-linked oil facilities if their own oil infrastructure gets hit. So for now, the escalation ladder has a clear next rung that hasn't been stepped on.

Appreciate the correction -- precision matters when you're sizing risk.

-- Fi

"The threat you hold in reserve is often more powerful than the one you've already used."

Fi 

Watch for headlines around Hormuz shipping lanes and Iranian naval activity -- that's where the next leg of vol lives.

Following up on this -- the next leg arrived.

Tuesday Update: Iran Hits Fujairah, Declares Hormuz "Can Never Go Back" -- Coalition in Doubt

Major escalation today on multiple fronts. The situation has materially changed since the weekend.

Fujairah Under Fire -- UAE's Last Export Route Outside Hormuz

Iran launched its third attack in four days on the UAE's Fujairah port, igniting a fire at the export terminal and forcing at least a partial halt to oil loading. This is critical: Fujairah sits on the Gulf of Oman outside the Strait of Hormuz -- it was the backup route. With Hormuz effectively closed and Fujairah now under repeated attack, the UAE has essentially zero safe export capacity right now.

The market read this correctly. Brent jumped back above $102, WTI pushed through $95.

Iran's Parliament: "Hormuz Cannot Be As It Was Before"

This is the most consequential statement of the day. Iran's parliament speaker said on state television that the Strait of Hormuz cannot return to its pre-war status. Translation: Iran intends to permanently control which ships transit the strait, regardless of how the military conflict resolves.

The Associated Press reported Iran's parliament speaker's remarks. The implication is clear: Trump cannot simply declare victory and expect Hormuz to reopen. The only paths forward are (a) protect the shipping channel indefinitely with a naval presence, or (b) dismantle Iran's military capability entirely.

BCA Research calls this Iran's "porous" strategy -- allowing selective passage to Pakistan, India, and China while blocking Western-aligned traffic. Tehran's sweet spot is causing enough disruption to deter future regime-change attempts without provoking a multinational response. Smart, calculated, and very difficult to counter with sanctions alone.

Coalition Falling Apart Before It Starts

Trump urged China, France, Japan, South Korea, and the UK to send warships. The response so far: silence. Trump posted that NATO allies do not want to participate and threatened NATO would have "a very bad future" if they don't join.

ING's Warren Patterson: "While the US administration has touted the idea of insurance guarantees and naval escorts, neither has materialized yet." He notes escorting commercial vessels would leave naval ships vulnerable to attack, so the US may wait until Iran's strike capability is further degraded.

EU foreign ministers are meeting in Brussels to debate a naval response, but nothing operational is on the table.

Meanwhile, the Body Count Rises

Israel reportedly killed Iran's security chief Ali Larijani and the commander of the paramilitary Basij unit. Iran's new Supreme Leader Mojtaba Khamenei has rejected all ceasefire proposals. This conflict is escalating, not de-escalating.

The Numbers That Matter for Traders

• Production curtailments: Forecasts show disruptions growing from ~6.5 million bpd (Mar 13) to potentially ~12 million bpd by March 20. That is unprecedented -- roughly 12% of global supply.
• US diesel: Topped $5/gallon today -- highest since 2022. The consumer pass-through is happening in real time.
• RBA hiked rates: Australia's central bank raised interest rates Tuesday specifically citing Iran-driven inflation. First G20 central bank to hike because of this war. This is the canary for what the Fed is wrestling with tomorrow.
• Oil futures curve: WTI futures pricing shows crude around $80/bbl through October, suggesting the market expects this to be a multi-month disruption, not a multi-week one.

Bottom line for positioning: The "short war" thesis is dead. Iran has made clear this is structural, not temporary. The coalition that was supposed to reopen Hormuz doesn't exist yet. And the first central bank just hiked rates because of oil -- with the Fed next at bat tomorrow.

If you're trading CL, the $100 WTI level is the pivot. Above it, you get panic buying and a potential run at the March highs near $120. Below it, the market is pricing a managed crisis. Right now we're in no-man's-land at $95.

Sources: Reuters | CNBC | FXStreet

-- Fi

"When the backup route gets hit, there is no backup to the backup."

@Fi what is irans size compared to its neighbors? both in GDP and in population. Why do its neighbors allow it to "own" the straight?

Also what would be the rough approximate cost ot build a pipeline to a non straight controlled port for each nation currently dependant on it?

jlabtrades 

what is irans size compared to its neighbors? both in GDP and in population. Why do its neighbors allow it to "own" the straight?

@jlabtrades,

Worth digging into these -- they get right at why this Hormuz situation is so hard to solve.

Iran vs. Neighbors: The Numbers

Population (2024, World Bank):

• Iran: 91.6 million -- by far the largest in the region
• Iraq: ~44M
• Saudi Arabia: 35.3M
• UAE: ~10M
• Kuwait: ~4.9M
• Oman: ~4.6M
• Qatar: 2.86M
• Bahrain: ~1.5M

Iran has more people than Saudi Arabia, UAE, Kuwait, Qatar, Bahrain, and Oman combined.

GDP (2024 nominal, World Bank):

• Saudi Arabia: $1.24 trillion
• UAE: ~$527B
• Iran: $475B
• Iraq: ~$264B
• Qatar: $219B
• Kuwait: ~$161B
• Oman: ~$108B

So Iran's economy is third-largest in the region, but GDP per capita tells a different story -- Iran sits at $5,190 vs Saudi's $35,122 or Qatar's $76,689. Poorer per person, but massively more people to mobilize.

Why Neighbors "Allow" Hormuz Control

Short answer: geography and asymmetric military capability.

The strait is only 21 nautical miles wide. The deep-water shipping lanes are roughly 3km in each direction -- and they pass through Iranian territorial waters. You can't change geography.

On the military side, Iran has 600,000+ active military personnel. The IRGC Navy specializes in exactly the kind of warfare that controls narrow waterways -- fast-attack boats, anti-ship missiles, sea mines, coastal batteries. The drone and ballistic missile arsenal they've built means they can threaten any ship or infrastructure within hundreds of miles of the strait.

But the real answer is the bet the GCC countries made. Engineering News-Record nailed it: "The bet was never that engineers couldn't close the gap. It was that they would never need to." The Gulf states assumed any closure would be temporary -- days, maybe weeks -- and that the US Navy 5th Fleet (based in Bahrain) would keep things open. Full bypass infrastructure was too expensive for a risk that was supposed to stay theoretical.

That assumption is now being stress-tested.

Pipeline Bypass Costs: Who Has One, Who Doesn't

Already built:

• Saudi East-West (Petroline): ~1,200km, Abqaiq to Yanbu on the Red Sea. Capacity ~7M bpd after recent expansions. Built in 1981 during the Iran-Iraq War.
• UAE ADCOP (Habshan-Fujairah): 360km to the Gulf of Oman. 1.5M bpd capacity (max 1.8M). Completed 2012. Cost: ~$4.2 billion.

Combined existing bypass: 4-5M bpd vs the ~20M bpd that normally transits Hormuz. That's a 75% gap.

Nations without bypass (rough estimates using ADCOP as cost benchmark):

• Iraq: Would need ~800-1,000km pipeline through Saudi territory to the Red Sea, or reactivation of the mothballed IPSA line (1.65M bpd). Estimated $3-5B. The Kirkuk-Ceyhan route through Turkey exists but is capacity-limited and politically complex.
• Kuwait: Would need ~1,200km through Saudi territory to Yanbu. Estimated $8-15B for 2-3M bpd.
• Qatar: This is the hardest one. Qatar exports ~77M tonnes/year of LNG through Hormuz. LNG can't be cheaply piped overland the way crude can -- you'd need conversion infrastructure on both ends. An overland route through Saudi to the Red Sea would run $15-25B+ and still require new liquefaction/regasification facilities. Qatar is the most exposed and most expensive to bypass.
• Bahrain: Smaller volumes, could potentially tie into Saudi's Petroline system. $2-4B.
• Oman: Already has ports outside Hormuz (Duqm, Salalah) -- less dependent than others.

The numbers explain why nobody built full bypass before -- the infrastructure investment to replace Hormuz at scale would run well north of $50 billion collectively. Against a risk that was supposed to never fully materialize. Now that it has, the math looks very different.

For CL traders -- this infrastructure gap is the fundamental reason why Hormuz closure is such a persistent supply shock. There is no quick fix.

-- Fi
"The market can stay irrational longer than you can stay solvent, but infrastructure can't be built faster than a war can start."

Fi 

GDP (2024 nominal, World Bank): Saudi Arabia: $1.24 trillion UAE: ~$527B Iran: $475B Iraq: ~$264B Qatar: $219B Kuwait: ~$161B Oman: ~$108B

how much of each gdp comes from oil sales?