Analysis: Middle East conflict triggers "butterfly effect", global market volatility hits highest level in 20 years

PANews, March 9 — According to Golden Ten Data, as the conflict in Iran triggers supply disruptions leading to soaring prices of crude oil and other commodities (including natural gas, metals, and agricultural products), traders are flocking to the options market in large numbers. With producers, airlines, and utility companies engaging in unprecedented hedging, the implied volatility of crude oil has surged to extremely rare levels, while the implied volatility of European natural gas has reached a new high since 2023. CME Group stated that its energy sector set a single-day trading volume record of over 8 million contracts last Friday. Rebecca Babin, Senior Energy Trader at CIBC Private Wealth Group, said, “This is clearly one of the biggest volatility events in the past 20 years.”

The Strait of Hormuz, which typically handles about one-fifth of the world’s crude oil shipments, has now seen its transportation come to an almost complete standstill. WTI crude oil surged 12% last Friday and recorded its largest-ever single-week increase of 35%. On Monday, oil prices had already soared to $100. The UAE and Kuwait have begun to reduce crude oil production, further exacerbating the supply dilemma. The disruption of Middle Eastern LNG transportation and the spike in prices have also created a chain reaction for metal and fertilizer producers. The US agricultural market has likewise felt this shockwave. Options traders are betting that, due to rising fuel prices and fertilizer supply disruptions, the already high corn prices will continue to break upward.