Treasury Eyes Oil Futures as Hormuz Crisis Deepens
The Trump administration has discussed trading oil futures to suppress prices as the Strait of Hormuz blockade sends Brent past $100. Experts warn of catastrophic consequences.
The Trump administration is weighing an unprecedented step: direct government trading in the oil futures market. Interior Secretary Doug Burgum confirmed Thursday that officials "have discussed" intervening in crude futures as a strategy to tamp down prices that have doubled since U.S. and Israeli forces struck Iran on February 28. Whether the Treasury has already acted is the question keeping every energy desk on Wall Street up at night.
The Case for Intervention
Brent crude closed above $100 for the second straight session on Thursday, settling at $103.14 per barrel. WTI finished at $98.71. Those numbers represent a roughly 50% surge since the war began two weeks ago, and they're feeding directly into gasoline prices that threaten to undermine the administration's affordability agenda.
The mechanism under discussion resembles a strategy Wall Street knows well. Treasury officials are reportedly considering buying long-dated futures contracts while selling near-month ones — a twist trade designed to flatten the forward curve and reduce spot-price panic. It's a version of Operation Twist, the Federal Reserve's 2012 playbook for bending the interest rate curve, repurposed for the energy market.
Rapidan Energy Group called the idea "unprecedented" in a client note this week but warned it "cannot be completely ruled out given the current panic situation." The multitrillion-dollar global crude market isn't easily pushed around, but the administration appears willing to explore every lever available.
The Monday Flash Crash
Speculation spiked on Monday when Brent briefly touched $120 per barrel before reversing sharply and falling back toward $80 — a $40 intraday swing that left traders scrambling for explanations. Tim Skirrow, Head of Derivatives at Energy Aspects, said his firm received a flood of client inquiries asking whether the U.S. government orchestrated the series of unusually large sell orders that triggered the reversal.
Sources close to Treasury Secretary Scott Bessent denied any intervention. But the denial hasn't settled the debate. When a price move that violent happens with no obvious fundamental catalyst, traders don't stop asking questions.
The Expert Pushback
CME Group CEO Terry Duffy didn't mince words at an industry conference this week. If the Trump administration attempts to suppress oil prices by trading futures, he said, it would face a "biblical disaster."
Joe Brusuelas, chief economist at RSM, put it more specifically: "the risk is that the US government ends up in the mother of all short squeezes." Global investors with deep pockets could easily test Treasury's resolve, and losing that fight would be both expensive and embarrassing.
The concern isn't theoretical. Crude futures are among the most liquid derivatives on the planet. A government seller creates an obvious target for hedge funds and sovereign wealth funds willing to bet that fundamentals — namely, a 20% reduction in global seaborne oil flow — will overwhelm any bureaucratic intervention.
What's Actually Happening in Hormuz
The fundamentals backing $100 oil are real. The International Energy Agency's 400-million-barrel reserve release, the largest in history, hasn't broken the price ceiling. Iran's IRGC has attacked ten vessels in or near the Strait since the war began, killing at least seven seafarers. Iran's new Supreme Leader Mojtaba Khamenei has vowed that "not a litre of oil" will pass through the waterway.
Global oil supply is projected to drop by 8 million barrels per day in March — the largest disruption the market has ever seen. Saudi Arabia and the UAE are diverting crude through alternative pipelines to Red Sea and Indian Ocean ports, but those pipelines carry roughly 12 million barrels per day less than what normally transits the Strait.
VLCC freight rates have hit an all-time high of $423,736 per day. Major insurers — Gard, Skuld, NorthStandard, and the London P&I Club — have pulled war risk coverage for the region entirely.
The Equity Fallout
The oil shock is rippling through equities in predictable fashion. The S&P 500 Energy Sector (XLE) has returned over 27% year-to-date and hit all-time highs this week. ExxonMobil and Chevron, which account for more than 40% of XLE's weighting, are both up double digits since the war started.
The rest of the market is paying the price. The S&P 500 fell to 6,672 on Thursday — its lowest close of 2026. The Dow dropped 547 points. Nine of eleven sectors finished in the red. Airlines, chemicals, and consumer discretionary names are absorbing the hit as input costs rise and consumer spending power erodes.
Fertilizer stocks — Nutrien, Mosaic, Intrepid Potash — are another war-trade winner, with Middle Eastern polyethylene disruptions compounding the supply crunch.
What Traders Should Watch
The administration appears to be backing away from direct futures trading, pivoting instead toward a gas-tax holiday and accelerated Strategic Petroleum Reserve draws. Bessent also issued a second authorization for countries to purchase sanctioned Russian crude already at sea — a move aimed at adding barrels without waiting for Hormuz to reopen.
The FOMC meeting next week will add another variable. If the Fed signals concern about oil-driven inflation, rate cut expectations evaporate, and equities face a second wave of selling pressure.
The EIA forecasts Brent remaining above $95 through April before falling below $80 in Q3 as the market adapts. But that forecast assumes some resolution to the Hormuz standoff. If Iran holds the line — and so far, there's every indication it will — the $120 level tested on Monday could be revisited without any Treasury intervention to cap it.
For now, the biggest trade in the oil market might be the one the government hasn't made yet.
References: Bloomberg, CNBC, Semafor, Al Jazeera, Axios, IEA Oil Market Report, CME Group/Futunn, Yahoo Finance, EIA Short-Term Energy Outlook