The oil price reaction is what was most worth watching last night.

The U.S. struck an Iranian island near the Strait of Hormuz. In theory, news like this should send oil prices jumping at least initially, since around 20 million barrels of crude oil and refined products pass through the Strait every day—roughly one-third of global seaborne oil. Any “risk to the strait” can easily be amplified into expectations of supply disruptions. But what happened? Brent was at $106 a barrel this morning, after plunging 7.6% the day before—a drop of about $8 in a single day, based on prices above $100. The market simply didn’t trade this strike as a supply disruption.

What really sent prices tumbling was the Iranian president’s remark that the supreme leader had given the government more room to negotiate with the U.S. That one line did more than the missiles. The market read it as a window opening for talks, not as a sign the strait would be closed. We’ve seen similar scenes before: after the 2019 attack on Saudi Arabia’s Abqaiq facility, oil prices briefly surged about 15% in a single day, then gave back those gains as the panic faded; oil surged and then retreated after the 2020 Soleimani incident; and during the Israel-Iran conflict in 2024, Brent also spiked before giving back its gains. Geopolitical news can trigger a brief surge, but only a real, sustained impact on supply can change the trend.

My take is simple: the geopolitical premium has been squeezed very thin, and even the slightest sign of easing sends prices lower. The reverse is also true: if something really happens, prices could rebound sharply. At these levels, chasing either longs or shorts makes it easy to get shaken out.

What about you—are you betting on a deal coming together, or on tensions flaring up again in the Strait?