The Strait of Hormuz — Part 2: Pricing Tail Risk in Oil and Options Markets
How crude futures, calendar spreads, and options actually price a low-probability high-impact closure scenario
In the early morning hours of January 3, 2020 (Baghdad time), a U.S. drone strike at Baghdad International Airport killed Qassem Soleimani, the commander of Iran's Quds Force and one of the most influential military figures in the Iranian state.
Within minutes, Brent crude prices, which had closed the previous trading day at approximately $67.05 per barrel (EIA daily Brent spot, the series used throughout this callout), gapped higher in overnight Asian trading. By the end of the U.
S. trading session that Friday, Brent spot stood at approximately $69.08 per barrel — a one-day move of roughly 3%.
The following Monday, January 6, 2020, Brent traded as high as approximately $70.74 intraday per Reuters and CNBC reporting, a peak that represented a roughly 5.5% move from the pre-strike close.
Then, over the next week, as Iran's response — a calibrated missile strike against U.S. air bases in Iraq with no U.
S. fatalities (the Pentagon later confirmed approximately 110 service members diagnosed with traumatic brain injuries) — failed to escalate into broader regional conflict, the entire risk premium decompressed.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 7 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Where the risk premium shows up — three observable signals
- 2Brent vs. WTI — the spread as Hormuz exposure
- 3Decomposing the geopolitical risk premium — what the math actually says
- 4Three observable signals of Hormuz tail-risk pricing in crude markets
- 5Soleimani strike, January 3-10, 2020 — risk premium added and subtracted in seven trading days
- 6Where to see this on the platform
- 7Summary