The Law of War
Ch. 3: Legal Implications of the Iran Conflict: Oil and Gas Trading
by Evan Koster, David Applebaum, Michael Yuffee, Michael Loesch and Tiffany Means

Tanker traffic through the Strait of Hormuz has “come to a near standstill,” with major energy companies caught in the crosshairs.¹ Approximately a quarter of global seaborne oil and a fifth of worldwide liquefied natural gas (LNG) supply flows through this chokepoint, and its disruption is driving massive price spikes and supply shocks.² Energy infrastructure across the Persian Gulf, including refineries, terminals, and storage facilities, could remain a target. Suspended operations and stranded shipments in the Strait raise high-interest questions for an energy industry already anxious about trading legality.

The Iran conflict’s disruption of global LNG and crude flows combined with heightened price volatility creates not only commercial perils for energy companies but also regulatory risks under both the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) frameworks. Several enforcement themes directly relate to commodity trading during a major geopolitical crisis including (i) regulatory scrutiny during volatile markets, (ii) enforcement priorities triggered by current market conditions, (iii) market manipulation concerns, and (iv) compliance practices for conflict-driven markets.

A. CFTC and FERC Scrutiny Intensifies During Volatile Markets

CFTC and the FERC have overlapping jurisdiction when it comes to energy trading: (1) CFTC jurisdiction covers futures, swaps, and cash market fraud/manipulation in commodities, including natural gas; and (2) FERC jurisdiction covers interstate wholesale natural gas and electric markets and prohibits fraud or manipulation in connection with jurisdictional physical transactions.

Given the extreme price volatility linked to disrupted flows through the Strait and major supply outages, companies are ramping up implementation and enhancement of trading programs. For example, oil-and-gas futures contracts could secure revenue certainty for upstream producers, LNG buyers aimed at protecting procurement budgets, and refineries hedging against volatility when crude access remains uncertain. Depending on risk appetite, swaps could allow parties to convert exposure to fixed or floating prices when physical delivery routes—such as the Strait—are in jeopardy. Options could provide asymmetric protection allowing companies to insure against extreme upside (for buyers) or downside (for sellers). Call options could help LNG buyers cap procurement costs whereas put options could help producers guard against price collapses after temporary spikes.

With shipping routes diverted and regional price dislocations widening, basis risk is sharply increasing. Location-specific swaps could hedge differences between Gulf-origin crude and destination markets. Cross-commodity hedging, and other trading, could be utilized where natural gas liquids (NGLs), LNG, and crude prices decouple due to logistical disruption. Given the interplay between force majeure, sanctions, insurance risk, and commercial volatility, an integrated legal and trading framework is now essential.

Companies should align trading policies with enforcement risk. Because the Iran conflict is driving extreme volatility in gas, LNG, basis spreads, and financial settlement indices, trading patterns that were previously routine may now appear suspicious to regulators. Rapid price dislocations, disrupted flows, and unusual trading activity could receive heightened surveillance. As a result, trading compliance lines should be monitored for volatility-driven conduct risks. This approach gives companies the ability to reduce exposure while preserving flexibility as conditions in the Strait evolve.

B. FERC Enforcement Priorities Directly Triggered by Current Market Conditions

The FERC’s core enforcement priorities include (i) fraud and market manipulation; (ii) conduct threatening market transparency; (iii) anticompetitive behavior; and (iv) infrastructure-related impacts. These are squarely implicated by the disruption of the Strait of Hormuz, where shipping shutdowns affect price formation at U.S. and global hubs, and where market participants are adjusting positions rapidly in response. Market manipulation risks can be amplified by volatility. FERC’s Anti Manipulation Rule (18 C.F.R. § 1c) prohibits:

• Any device, scheme, or artifice to defraud


• Misrepresentations or omissions


• Any course of conduct operating as a fraud or deceit

The rapidly escalating conflict involving Iran, the United States, Israel, and multiple Gulf states has created acute risk for global energy markets due to the deteriorating shipping environment in and around the Strait. Given the unprecedented scale of disruption, clients should continue to expect sustained supply chain impacts and elevated legal risk. The Iran conflict has already driven drastic oil price increases and sharp LNG price spikes, placing energy producers, marketers, and traders under extreme financial stress. In the current environment—where physical flows are disrupted, and financial positions tied to indices may respond sharply—FERC may scrutinize:

• Large, early session or concentrated trades that move physical indices


• Uneconomic trading that may appear intended to support related financial positions


• Sudden changes in trading patterns in response to Gulf supply interruptions

Notably, uneconomic trading, or even trading “indifferent” to profitability, may be considered manipulative if it benefits related positions. Finally, evidence of intent could be inferred from patterns and communications. FERC identifies indicators such as:

• Changes in products, locations, or volumes


• Missed profit opportunities


• Misleading or careless trader communications

With LNG routes diverted and physical markets impaired, regulators could closely examine whether trading decisions involving natural gas were made for legitimate hedging, other trading, or liquidity reasons or to influence settlements and manipulate market prices rather than purely economic reasons based on trading fundamentals.

C. CFTC Enforcement Risks: Manipulation and Disruptive Trading

The Commodity Exchange Act (“CEA”) administered by the CFTC prohibits price manipulation, fraud, wash trades, corners, “banging the close,” and other disruptive trading. Given the dramatic market swings caused by the Strait of Hormuz closure, regulators could monitor:

• Trading around daily, monthly, or products linked index settlements


• Related position strategies across physical and financial markets


• Use of futures or swaps to capitalize on disruptions in physical supply

The CEA prohibits (i) violating bids or offers; (ii) reckless or intentional disregard for orderly execution; and (iii) spoofing (bidding/offering with intent to cancel). Extreme volatility increases the likelihood that activity is flagged as “disruptive” especially when liquidity is thin, and spreads are wide. Please note that disruptive practice cases can be brought without deception or classic price manipulation, and despite a lighter‑touch regulatory posture under the current administration, the CEA’s prohibitions remain in force and can be enforced through appropriate cases supported by the evidence.

Finally, for both FERC and the CFTC, during conflict driven market stress—when compliance questions, trade deviations, or unusual patterns may arise—failure to maintain records or preserve relevant data can increase penalties and threaten the ability to obtain cooperation credit in resolving enforcement matters.

D. Key Compliance Practices for Conflict-Drive Markets

The Iran conflict represents one of the most significant tests of energy resilience and trading compliance in decades, which could prompt regulators to look specifically for conduct that appears to exploit crisis-driven dislocations.

• Never attempt to move index prices through your trades.


• Trade strictly on market fundamentals, especially amid volatility.


• Document trading strategies, including rationale for hedging and other trading changes tied to Gulf disruptions.


• Avoid commentary about moving markets or affecting indices.


• Engage Legal/Compliance early when strategies shift due to geopolitical factors.

Iran’s actions—including attacks on commercial vessels, closure of the Strait of Hormuz, and strikes against energy infrastructure—raise substantial concerns for energy trading companies and have already triggered major commercial consequences for oil and gas companies worldwide. A risk-mitigation framework including a robust hedging and speculative trading strategy, and regulatory compliance is essential to managing volatility, protecting earnings, and ensuring supply continuity. As the situation evolves, companies must stay ahead of contractual, regulatory, and operational challenges. Our team is monitoring developments continuously and can provide rapid enforcement risk assessment and compliance advice tailored to your trading footprint.

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¹“How the Iran War is Disrupting Global Oil and Gas Supply,” https://www.bloomberg.com/news/articles/2026-03-17/iran-war-oil-and-gas-supply-squeeze-and-strait-of-hormuz-disruption-explained (last accessed Mar. 22, 2026).

²See Scott Montgomery, “Iran War Energy Shock – Here’s What It Means For Oil And Gas,” https://www.forbes.com/sites/scottmontgomery/2026/03/17/iran-war-energy-shock--heres-what-it-means-for-oil-and-gas/ (last accessed Mar. 19, 2026); “How Blocking Oil and Gas From Leaving the Strait of Hormuz Ripples Around the World,” https://www.nytimes.com/interactive/2026/03/25/business/energy-environment/strait-hormuz-oil-gas.html (last accessed Mar. 25, 2026).

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