On the weekend that US-Israeli drones first began to rain down on Tehran, energy traders across the world’s major financial centres began to redraw their strategies.When they returned to their trading desks on that March Monday morning, they found oil and gas prices spiking amid a market nightmare made real: the unprecedented shutdown of the vital trade route through the strait of Hormuz.“I had been telling our oil trader for weeks to be ready for a war with Iran,” said one trading analyst at a major European energy company.“But he didn’t see it.The market was oversupplied, and prices were already looking higher than they should, so he shorted the market.

That guy lost millions after the first strikes,” he said.“He’s an idiot.”In the weeks since war engulfed the Middle East, global energy markets have whipsawed in response to the escalating conflict as it throttled flows of fossil fuels to the global market and damaged the vital energy infrastructure underpinning the Gulf economies.Brent crude, the international oil benchmark, registered its steepest one-month gains and some of the most dramatic daily price fluctuations ever recorded.The impact has rippled across markets for gas, fuels and fertiliser; reverberating through equity markets and raising fears for the global economy.

Market volatility creates opportunities for traders to make money.But it also raises the risk of sharp losses.In a world away from the futures trading of hedge funds and investment banks, energy traders in the physical market – those responsible for the deals which connect cargoes of crude and gas to buyers around the world – the crisis is a logistical calamity with few clear solutions.“I bet everyone thinks we’re having a great time, watching as the price climbs higher.But if your job is to connect cargoes to buyers, then it’s a lot less fun.

If you’re not sure which way the market is going to go on any given day, you can still lose money,” one industry source said,In the global scramble to secure supplies, tankers loaded with millions of barrels of crude have U-turned in the Atlantic as they are diverted to Asia where the crisis is most acute,Almost a dozen super-chilled tankers of liquefied natural gas have changed their destination mid-voyage from Europe to Asia,From their Swiss headquarters, the world’s biggest commodity trading houses – Vitol, Trafigura, Glencore, Gunvor and Mercuria – have attempted to choreograph a rerouting of the world’s disrupted energy supplies,If they succeed, the financial rewards can be eye-watering.

After the 2022 energy crisis, more than 3,000 traders at Vitol were reportedly paid an average of just over $785,000 each in salary and bonuses.Shareholder payouts to its 450 top executives and traders, who also own the company, totalled $2.5bn in 2022 and another $2.5bn in the first half of 2023.But the current crisis is more complex, and is estimated to have an impact 17 times larger than the halt of Russian energy supplies.

The Gulf is responsible for supplying a fifth of the world’s oil and gas, a quarter of the world’s seaborne jet fuels and almost half of global supplies of urea used to make the fertiliser vital for agriculture.Already, emergency rationing plans have been put in place in some countries in Asia and Africa, and Europe is bracing for potential shortages in the weeks ahead.When a small group of European energy market traders met for lunch at a restaurant in London’s Square Mile a couple of weeks into the crisis, there was only one rule: no discussion of the supply shock ripping through the markets.“For obvious reasons,” quipped one European gas trader who attended the lunch.Discretion is standard for traders wary of giving away their market positions, but there is nothing standard about the markets in which they are trading today.

After a choppy few years in which shipping and energy markets have been disrupted by the pandemic, a container ship wedged in the Suez canal and the war in Ukraine, the Iran conflict brings fresh uncertainties.Energy prices are typically governed by a forensic analysis of the market fundamentals: traders pore over production flows, refinery demand forecasts and technical market pricing patterns.But many are now scrambling to keep pace with the volley of strikes against key oil and gas infrastructure and contradictory statements from Donald Trump.“This crisis has turned the markets into chaos,” the trader complained.“It is genuinely very stressful to feel completely out of control.

Forget analysis and fundamentals; it’s all fear and headlines.Your well-honed trading strategy can be run over and blown up in a single headline.”But, despite the chaos, there are many in the industry who are surprised futures oil prices have not climbed higher than the peak of $119.50 a barrel.Prices for physical crude cargoes bought in the North Sea for prompt delivery within 10 to 30 days indicate the global benchmark will soon be higher.

On Thursday, they jumped $13 a barrel to $141, the highest level since 2008,Amrita Sen, founder of Energy Aspects, told CNBC that the futures price is “almost giving a false sense of security that things are not that stressed … masking the true tightness that everywhere else is showing up,”“Oil markets should be rolling higher every week the strait is closed, prices should be jumping higher every time a piece of infrastructure is damaged,There’s actually very little to keep prices down: just some strategic oil reserves and Trump,” says one trader,Ahead of the midterm elections in November, US fuel prices have exceeded $4 a gallon for the first time in four years.

Trump’s camp has consistently downplayed the market impact of his military campaign against Iran and assured the media that the conflict would be resolved sooner than expected.For the most part, the strategy has worked.Even within the historic market surge, oil prices have repeatedly slumped back with each major public assurance, and remained below where many traders believe oil prices could be, despite the deteriorating picture for global oil supplies.Suspicious trades on the crude futures markets and the growing influence of prediction betting markets, including Polymarket, have added to fears that the market may be rigged by insiders looking to influence trading patterns or simply turn a quick profit.In the third week of the war, a flurry of trades worth $580m bet that the oil price would slump, triggering one of the sharpest oil futures sell-offs ever recorded.

The timing of the trades, moments before the US president said he would “postpone” airstrikes on Iran’s power plants after “productive” negotiations with the regime, fuelled speculation of insider trading.The White House has denied that US officials were involved.But the close relationship between the White House and major hedge funds sparked speculation that money managers may have been tipped off on new announcements.“I imagine some Tel Aviv hedge funds could be very well connected to the decisions being made about the direction of the conflict, too.They would no doubt be able to use US hedge funds to execute trades,” the trader said.

Some have even speculated that the US Treasury itself may be trading in the market in an attempt to keep market prices down after Doug Burgum, the US interior secretary, said officials had discussed a possible intervention.After the proposal was widely derided by market experts, treasury secretary, Scott Bessent, was forced to deny that the administration would follow through on the plans.Still, rumours have persisted.Tim Skirrow, a former oil trader and the head of derivatives at Energy Aspects, a market analytics firm, said: “The current administration is very close to the hedge fund and algorithmic trading community so perhaps there is either information leakage or direct involvement by funds acting in the interests of the US government.”The White House is still playing some role in keeping near-term oil prices as low as possible, Skirrow said.

Its plan to release emergency oil reserves to the market uses an innovative contract structure through which the ‘buyer’ can claim a barrel of crude today on the promise of returning at least 1.2 barrels in a year.This makes sense because current prices are far higher than the advance price in the futures market, Skirrow explained.“The clever thing is that this more or less forces the takers to hedge in the market by selling the high prices at the front of the curve, which is where the current problem is, and buying contracts in a year’s time,” he said.“It is a clear example that they are trying to keep prices down in the short term,” he said.

As US troops gather in the Middle East, the White House’s desire to tame the energy markets may not be enough to contain prices.