26/04/20
Markets underestimate US-Iran volatility shock: Citadel
Lausanne, 20 April (Argus) — Commodity markets entered the US-Iran conflict with
a fairly high level of escalation risk already priced in, but still sharply
underestimated the volatility shock that followed, Citadel's head of commodities
Sebastian Barrack said at the FT Commodities Global Summit in Lausanne today. In
the run-up to the conflict, market estimates put the probability of a disruptive
event at around 50-70pc, Barrack said. He said markets had done "a pretty good
job" of pricing the range of likely outcomes before the conflict began, but
failed to price volatility adequately. Oil and gas volatility rose by about
300pc in the first weeks of the conflict, far above levels implied beforehand.
Barrack contrasted the episode with the market shock that followed Russia's
invasion of Ukraine in 2022. At that time, gas volatility surged by around 500pc
and margin requirements jumped roughly 15-fold, placing severe strain on trading
firms and forcing some participants to cut positions because they could not
finance them. This time, the sector entered the crisis in a stronger financial
position, with larger capital buffers and more robust funding lines following
the windfall profits of recent years, he said. Cash-futures disconnect not
unusual Barrack rejected suggestions that futures markets had become detached
from physical fundamentals, arguing instead that divergences between cash and
futures prices reflect different parts of the market solving different problems.
Cash markets — particularly in Asia — have shown stress more directly, he said.
Futures markets, by contrast, increasingly reflect assumptions that the
disruption will eventually ease and that deferred supply will return.
Longer-dated prices are also being anchored by producer hedging, especially in
the US, where sellers have taken advantage of high prices to lock in margins.
The distinction matters beyond energy. Similar tensions between tight physical
supply and forward pricing have emerged across metals markets in 2026,
increasingly forcing investors to separate near-term supply stress from
expectations of medium-term rebalancing. Barrack also said the surge in
real-time information through social media has changed how traders process
events. Market-moving remarks from US president Donald Trump and other political
leaders have accelerated price reactions, but this has not reduced the need for
detailed analysis of physical flows, inventory responses and the mechanics of
supply disruption, he said. Politicians better prepared Barrack said
policymakers now have a much stronger grasp of commodity market mechanics than
they did during the 2022 energy crisis. Governments, caught behind the curve
four years ago, have since developed closer links with industry participants and
improved their understanding of how physical shortages are resolved through
demand destruction, stockdraws and policy responses, he said. One area where
policymakers may still lag market participants is in identifying changes in
physical flows in real time, Barrack added, particularly when supply chains
begin to adjust rapidly following a shock. By Raghav Jain Send comments and
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