Oil market liquidity has evaporated since the start of the US-Iran conflict, with Brent futures open interest plunging to its lowest level since August. Traders increasingly avoid Middle East volatility as the longest blockade of the Strait of Hormuz on record cuts off Persian Gulf oil. Aldo Spanjer, head of energy strategy at BNP Paribas SA, calls the market "close to untradeable."

Brent futures plunged nearly 12% this week after potential peace talks emerged, only to reverse when deals failed to materialize. Options volatility reached record highs as prospects shifted constantly. Such price swings reflect thin liquidity and punish traders who attempt to navigate the uncertainty. Market participants now face extreme risk when executing positions.

Remaining participants include algorithmic traders, oil producers, speculative hedge funds and fundamental players with minimal risk exposure. Scott Shelton of TP ICAP Group Plc calls it a "risk-taking desert" where most people are only hedging. Traders favor more complex strategies like time spreads and delta hedging rather than straightforward bets on flat price.