We're Living In a New Age of Economic Warfare Says Fishman

A two-week ceasefire agreement between the US and Iran and Israel's agreement to hold direct talks with Lebanon (focused on disarming Hezbollah) eased geopolitical risk. The cooling oil rally helped Wall Street stage a rebound as traders moved back into risk assets. Key issues remain unresolved — Israel's offensive in Lebanon and the status of the Strait of Hormuz — leaving upside for further market moves if talks falter.

Analysis

If the market’s geopolitical risk premium retraces, expect a multi-week unwind of commodity and insurance spreads rather than an immediate demand-driven oil price collapse. Mechanically, a $3–$8/bbl compression in the risk component would knock 200–400bps off front-month Brent volatility, tighten time spreads (backwardation → flat/contango relief) and remove the rationale for elevated tanker arbitrage routes and long-haul stockage. These flow changes tend to benefit asset owners with high fixed-cost operating leverage (refiners, short-duration storage) while penalizing capital-intensive shipping and insurance providers that repriced risk into long-term contracts in recent months.

Second-order winners include refiners with flexible feedstock intake and domestic retail gasoline exposure; they can convert a smaller crude risk premium into widened crack spreads within 4–12 weeks. Losers are names that captured reinsurance-like risk premia — marine insurers, VLCC owners and certain E&P names that hedged at peak volatility — whose revenue assumptions may be re-rated lower as charter rates and premiums normalize. Currency and EM sovereign credit will also feel asymmetrically sensitive: exporters who pre-sold FX at higher oil levels will see realized fiscal pressure if the premium collapses over a quarter.

Tail risks remain asymmetric and event-driven. A re-escalation trigger (maritime incident, proxy strike, political breakdown) can re-inflate the premium inside 72 hours and produce >$10/bbl snap-back with vol doubling; conversely, a durable reduction in perceived tail risk will produce a shallow, multi-week volatility crush. Key monitors: front-month Brent/WTI spread, 1–3 month contango/backwardation slope, VLCC time-charter indices and 30-day implied vols on BNO/USO to time option trades and sizing.

Consensus positioning likely underestimates the speed of insurance and shipping rate normalization — those mark-to-market moves are front-loaded and tradable. That makes short-dated volatility sells and pairs that long refining/short shipping attractive, but size them for rapid gamma risk and cap losses around headline-driven regime flips in the 1–10 day window.

Key Decisions for Investors

• Overweight Valero Energy (VLO) — buy shares or +3 month call spread (buy 1.5x notional of 3-month 1:2 call spread) sized 2–3% of book. Timeframe 1–3 months. Rationale: benefits from tightening crack spreads as crude risk premium compresses; target +15–25% upside if front-month Brent premium falls $4–6/bbl. Stop-loss: -10% absolute or hedge with short-dated puts (cost ~2–3% of notional).
• Pair trade — long VLO / short Euronav (EURN) equal dollar exposure for 3 months. Expectation: refiners outpace tanker owners as charter rates normalize. Risk/reward: asymmetric — expected +10–20% pair return if tanker rates drop 30–50% from peak; max loss if oil re-spikes and refiners underperform (~-15%). Use 5% stop on net pair value.
• Sell short-dated oil vega via USO 30-day call spreads — sell ATM 30-day call, buy 2–3% OTM call to cap risk (size 1–2% of book). Timeframe 2–6 weeks. Rationale: if short-term event risk falls, implied vol should compress and near-term calls will decay rapidly. Max profit = premium received; max loss = spread width less premium (define position size accordingly).
• Tactical long on RTX (Raytheon Technologies) 6–12 month call spread (buy 2027 1:2 bull call spread sized 1% of book). Timeframe 6–12 months. Rationale: longer-term defense spending and backlog support even if near-term headline risk softens; acts as convex hedge if escalation returns. Expect 2:1 skewed upside vs drawdown; cut if backlog revisions or contract cancellations occur.