The U.S. Treasury Department is evaluating direct action in the crude oil futures market to curb price surges triggered by conflict with Iran. This would represent a rare, and potentially unprecedented, form of financial market intervention by Washington, aimed at influencing price expectations rather than utilizing physical oil supplies.

According to reports, a senior White House official revealed that the Treasury could announce a series of measures to address rising energy prices as early as March 5 (Thursday), which may include direct intervention in the oil futures market. As details of the plan remain unclear, the official declined to disclose specifics prematurely, stating a desire not to pre-empt the Treasury's formal announcement.

The direct cause for this potential intervention is severe market volatility. Since the outbreak of conflict with Iran last Saturday, U.S. crude oil futures prices have surged nearly 21% due to concerns over disruptions to Middle Eastern supply. This has directly increased fuel costs and sparked fears of a rebound in inflation.

Despite high market attention to the Treasury's potential move, the U.S. President has remained calm. He explicitly stated that the current priority is military action, not intervening in short-term oil prices, and expressed expectations for a rapid price decline once the conflict subsides.

The concept of intervening in futures markets is closely linked to the deep financial background of the U.S. Treasury Secretary. The Secretary previously served as Chief Investment Officer at Soros Fund Management and later founded the macro hedge fund Key Square Group, possessing decades of experience in currency, bond, and commodity trading.

From an operational perspective, a senior analyst at Price Futures Group, Phil Flynn, described the potential move as a "highly creative, outside-the-box idea." He suggested a possible method could be "selling near-term futures contracts and buying longer-dated ones" to depress prices of nearby contracts and calm market panic. Flynn also noted that the Treasury's traditional functions focus on fiscal policy, debt management, and occasional foreign exchange intervention, with no prior involvement in commodities like oil.

While intervention in oil futures would be unprecedented, the U.S. government's use of financial tools to stabilize markets is not without precedent. During the 2008 financial crisis, the Federal Reserve implemented quantitative easing through large-scale purchases of mortgage-backed securities and Treasuries. The Treasury's Exchange Stabilization Fund (ESF), established during the Great Depression, intervened last October by purchasing pesos and providing a $20 billion swap line to Argentina to support its currency. The ESF, with total assets of $220.85 billion as of January 31, has historically supported Fed lending facilities during the 2008-09 global financial crisis, the COVID-19 pandemic, and the 2023 U.S. banking crisis.

Additionally, Mexico has long operated a petroleum revenue protection program known as the "Treasury hedge," once the world's largest financial oil trade. However, this program hedges physical oil inventories, fundamentally differing from purely financial instrument-based interventions.

Multiple market analysts expressed skepticism about the practical effectiveness of Treasury intervention, arguing that the utility of financial tools depends on the restoration of physical supply. John Paisie, President of Stratas Advisors, stated that while such a move might curb speculative behavior by making traders aware of U.S. government opposition, thereby moderating price increases, "it does not solve the problem of physical supply disruption." He emphasized the significant impact of a closure of the Strait of Hormuz and the lack of spare capacity outside the Gulf region, concluding that "if a large volume of oil supply remains blocked, financial operations will not work; traders will continue betting on higher prices because prices should indeed be higher."

Tony Sycamore, an analyst at IG Markets, suggested that even if the Treasury directly intervenes in futures contracts, it "might create a brief pause or scare off some speculative longs, but I doubt the effect would last more than a day or two." He noted the oil market's vast, global scale is driven by real supply and demand fundamentals—especially with strait shipping already disrupted and threats like Iranian drones present—making Treasury verbal pressure or symbolic action unlikely to change the situation.

Ed Meir, an analyst at Marex, highlighted potential risks: "If they plan to push prices down by selling futures, this is a major gamble and an unprecedented intervention in the crude market. The most immediate question is: if prices continue to rise and short positions incur losses, what will they do? Use the Strategic Petroleum Reserve for delivery, or continue adding margin and hold out?"

Ben Hoff, Head of Commodity Quantitative Research at Societe Generale, called the potential move "unprecedented" and stressed the limited influence financial tools ultimately have in energy markets, noting that "the devil is in the details, and we still need to see the U.S. government's specific plan."

While Washington considers intervention, trading activity in crude oil derivatives markets has reached a fever pitch. As WTI crude futures are poised for their largest weekly gain since March 2022, producers and consumers are rushing to participate.

Data from Energy Aspects indicates that U.S. producer hedging volume reached a record high for a single day this week, the highest since data compilation began in 2023. Traders reported that for major dealers serving both producers and consumers, this week has been among the busiest in terms of transaction volume.

Producers are seizing a rare pricing window to lock in future sales profits through forward contracts. This sharp selling of forward contracts has caused the WTI futures curve to exhibit severe backwardation (where near-month contracts trade at a significant premium to later months), with the spread between June and December contracts surging from $1.48 to $8.21 in just two weeks. Simultaneously, collar strategies have become more attractive, allowing producers to buy put options for downside protection while selling call options to reduce hedging costs.

Facing this situation, oil consumers are equally vigilant. Rob McLeod, Head of Energy Price Risk Solutions at Hartree Partners, stated on LinkedIn that for airlines that previously considered hedging "too expensive" or "too risky," this week served as a stark lesson, noting that "relying on luck is not a strategy."