The US is deploying additional forces and assets to the region in case hostilities against Iran resume. This was reported by AXIOS. According to the publication, preparations in Washington are entering their final stage.
The IRGC is the Islamic Revolutionary Guard Corps. A military structure in Iran separate from the army. On the morning of the same day, it announced a united front in two key straits.
For a trader, this is a story about oil. A day earlier, the market was playing out the opposite scenario and falling on expectations of de-escalation. Now the agenda has reversed in a single day.
What exactly happened?
- November 5, around 09:37 Moscow time - the AXIOS report on US preparations came out.
- 09:10 Moscow time - the IRGC stated that "resistance forces" had formed a united front in the Strait of Hormuz and the Bab-el-Mandeb strait.
- The day before - oil was losing about 10% on expectations of de-escalation.
The trigger for the drop came from Hakeem Jeffries. The Democratic leader in the House of Representatives promised a bill against tariffs and war with Iran.
Why are the straits so important?
These two points are what make the IRGC statement important for oil. Both are chokepoints of global logistics.
- The Strait of Hormuz. The only maritime exit from the Persian Gulf. Tankers from Saudi Arabia, Iraq, the UAE, Kuwait and Iran itself pass through it.
- The Bab-el-Mandeb strait. The entrance to the Red Sea and the route to the Suez Canal.
The threat to vessel passage here is immediately priced into the risk premium.
What's next?
The market is watching two things. Whether officials in Washington confirm the force deployment. And whether Jeffries' bill reaches a vote.
The main thing: as long as there are conflicting signals on the same issue, oil gets repriced on every new headline.
What to do about this. Keep the dates of key market events in the economic calendar, and keep trading on such moves within pre-defined risk limits.
Oil jerks on every headline - but what about volume?
Geopolitics produces oil candles that you wait months for in a calm market. Guessing the direction is half the battle. The other half is what you're standing with in that move. A minus 10% day on a personal deposit of a couple thousand is closed out by an amount you don't even remember. In prop trading, the working account is provided by the company: first its check on discipline and loss limits, then an agreed share of the profit. It's calmer to understand the mechanics now, while there are only headlines about Hormuz.