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.
