Geopolitical tensions are now swiftly spilling into the commodity markets and also ETFs. At mid-day Friday, Polymarket bettors are placing a 74% probability of crude oil reaching $120 a barrel in April amid escalating rhetoric regarding a potential attack on Iran, according to a Wall Street Journal report. This was an increase from 68% recorded early morning on Friday. The increase in probabilities comes following a surge in the oil market amid an announcement from U.S. President Donald Trump that he will continue “Operation Epic Fury” for two or three more weeks targeting Iran.

Crude oil prices promptly responded to the news as crude oil futures reached as high as 11% at $111.54 Thursday. The United States Oil Fund (NYSE:USO), which tracks WTI crude, surged more than 11% during the session, while the United States Brent Oil Fund (NYSE:BNO) also posted over 7% gains, reflecting a synchronized rally across global benchmarks. The sharp move underscores how quickly geopolitical shocks are being transmitted into ETF markets.

Energy ETFs Gain Ground As Inflows Reach All-Time Highs

The recent gains came in addition to existing investor demand as energy ETFs posted a record-breaking $5 billion worth of investment inflows in March and $12 billion in the past three months, according to data from Bloomberg Finance and State Street Investment Management, compiled by Etf Database.

Beyond USO and BNO, equity-focused funds such as the Energy Select Sector SPDR Fund (NYSE:XLE) and oil services ETF VanEck Oil Services ETF (NYSE:OIH) are also in focus as higher crude prices boost earnings expectations across the sector. These funds tend to offer more sustained upside during prolonged price rallies compared to futures-based ETFs, which are more sensitive to short-term volatility.

Historic Market Decoupling Raises Stakes

The reason why the present environment is unique is the increasing gap between the price movement of oil and general stocks. According to data provided by The Kobeissi Letter, the SPDR S&P 500 ETF Trust (NYSE:SPY) and USO have diverged in 38 out of the latest 50 trading days – an inverse correlation coefficient of 76%, higher than during the time of the 2008 Financial Crisis.

While crude has surged more than 70% over that period, the S&P 500 has declined roughly 4%, highlighting how energy markets are increasingly driven by geopolitical risk rather than macro fundamentals. Meanwhile, tech-heavy exposure via the Invesco QQQ Trust (NASDAQ:QQQ) has remained relatively resilient, further widening the divergence.

$120 Oil: Signal Or Sentiment?

Thus, the main issue for ETF investors is whether prediction markets indicate an extended breakout trend or only reflect current fear sentiment. Although the risk of supply disruption at the Strait of Hormuz is a legitimate explanation for higher prices, history has proved many times that energy trade related to a geopolitical spike can move just as sharply in the other direction.

Nevertheless, given the rapid flows, deteriorated correlations, and rising oil ETFs, the road to $120 may depend less on speculation and more on how long the conflict keeps supply under pressure.