“TACO” fades, “NACHO” debuts? Wall Street no longer bets on a quick reopening of Hormuz, Citi warns oil prices may surge to $120 again

According to The Intelligent Investor, Wall Street financial giant Citi has released a research report stating that although inventory drawdowns, the release of strategic oil reserves, reduced imports by Asian countries due to high oil prices, relatively weak demand, and signs of de-escalation among warring powers have all helped buffer energy cost-driven pressures, if long-term peace negotiations between the US and Iran remain challenging, leading to a prolonged blockade and control of the Strait of Hormuz, the international oil price benchmark—Brent crude oil—may rise further from the recent significant pullback around the $100 mark, potentially reaching new cyclical highs.

It is understood that as the Hormuz Strait crisis cannot be quickly resolved, Wall Street traders appear to be shifting from the "TACO" trading strategy (betting on further positive progress in US-Iran talks or Trump always backing down at the last moment) to the "NACHO" trading strategy—that is, assuming a long-term blockade of the strait is inevitable (Not A Chance Hormuz Opens). Although Brent crude oil has retreated from its wartime high of $126 per barrel in late April, it remains above $100, nearly 50% higher than before the escalation of the conflict.

Since Trump launched a global trade war in April 2025, the "TACO" strategy (Trump Always Chickens Out) has been widely adopted by traders. Whenever Trump issued newer, more aggressive tariff threats or dropped other bombshells causing market crashes, investors in global equity and bond markets would bet that he would ultimately back down, or that the implemented policies would be much milder than his verbal threats. As a result, they would seize appropriate downturn opportunities to bottom-fish, betting heavily on an imminent rebound in the stock market. However, more and more traders are now inclined towards the "NACHO" trade theme.

Citi Warns Oil Price Upside Risk Remains

Citi's strategists state that their baseline forecast scenario still expects the disruption in the Strait of Hormuz to ease significantly by the end of May, but also note that the increased difficulty of reaching a US-Iran agreement has greatly increased the near-term upside risks for oil prices.

This Wall Street giant maintains its high target of $120 per barrel for Brent crude over a 0–3 month horizon; it also expects Brent to average $110 per barrel in Q2, then retreat to $95 in Q3 and $80 in Q4.

Citi cites tanker tracking data showing that China’s oil imports in April and May may have decreased by about 2.4 million barrels/day, from an average of around 11.6 million barrels/day in 2025 to around 9.2 million barrels/day, which also alleviates supply-side pressure in the global oil market.

However, Citi’s strategists state, “We continue to believe that the crude futures market is underestimating both the potential duration of a Hormuz Strait blockade and the market’s tail risks.”

Citi also notes that even if the Strait of Hormuz is reopened in an orderly manner, global oil supply will remain very tight in the short to medium term; it may take a significant period to return to the transport levels seen before the late February escalation of Middle East geopolitical tensions. During this time, panic-buying from countries or hoarding due to inventory fears could push oil prices much higher.

Overall oil production in the Middle East has seen a dramatic reduction due to the Iran war, and this time, the supply cut and oil price surge are not only driven by “Hormuz Strait transport disruption,” but also by a triple whammy of “production cuts + export vessel bottlenecks + infrastructure damaged by missiles.” This is why investment consultancy founder Ed Yardeni and other senior Wall Street strategists have recently emphasized that in a global environment already beset by high financing costs and geopolitical shocks, energy stocks are shifting from a cyclical to a strategic overweight in investment portfolios.

Even if the strait reopens, redirecting crude flow, infrastructure repairs, fleet redeployment, refinery ramp-ups, and inventory restocking will all take months; International Energy Agency head Fatih Birol even suggested that it could take up to two years for a significant proportion of war-disrupted oil and gas capacity to return to pre-war levels. In other words, a ceasefire can only squeeze out the front-end panic premium, not quickly smooth over the back-end supply gaps and inventory vacuum.

The “NACHO” Trade Sweeps Wall Street! Prolonged Hormuz Blockade Reshapes Oil, Inflation, and Rate Expectations

As the Hormuz Strait crisis remains unresolved, Wall Street traders are shifting from "TACO" trades (betting on short-term intervention or Trump policy retreat) to "NACHO" trades. Although inventory drawdowns, strategic oil reserve releases, and falling Chinese imports have partially cushioned oil price pressure, the stalemate in US-Iran negotiations means a return to normal navigation through Hormuz is a distant prospect, raising short-term upside risk for crude prices and providing macro logic for the “NACHO” trade.

Although Brent crude has fallen from its wartime high of $126 per barrel in late April, it remains above $100—about 50% higher than pre-conflict levels. The shipping and insurance markets offer more direct pricing signals: the war risk premium reached about 2.5% of ship value at its peak, from only 0.1% pre-war, and is still eight times higher than pre-war levels. The market has gradually accepted the “normalized” feature of the blocked strait; not only the oil market, but also shipping insurance and rates markets have priced in a prolonged blockade. The rates market’s response to a sustained energy shock is especially clear: short-term rates have repriced, the yield curve is noticeably flatter, and investors’ concern over persistently high oil prices and inflation risk is rising sharply.

The "NACHO" trade not only influences short-term speculation but also sends a macro-structural signal: the Hormuz crisis could have a far greater impact on global energy supply chains, inflation expectations, and financial asset pricing than market participants previously expected. Investors must adjust their strategies to incorporate persistently high oil prices and supply chain risks into their medium- and long-term investment decision frameworks.

From a macro and commodities perspective, Wall Street veteran Ed Yardeni is turning bullish on energy stocks at this moment, believing “even if the war ends, oil prices will not return to pre-conflict levels.” In essence, he is defining this oil price shock as structural supply damage, not a one-off geopolitical risk premium.

The real driver of the oil price trend may no longer be just whether the fighting pauses, but the "post-war repricing" of the entire energy chain, including the Strait of Hormuz, marine insurance, tanker capacity, refinery repairs, and inventory rebuilding. Though the US government has prolonged the ceasefire, the blockade of Iranian ports continues. The energy trade is not facing a linear logic of “ceasefire means supply recovery.”

If oil prices are permanently elevated, the global inflation decline path will be stickier, the Fed and other central banks’ room for rate cuts will be compressed, and risk asset valuations will continue to be capped. In contrast, the energy sector can both benefit from the profit gains of high oil prices and hedge against tail risks such as renewed war, disrupted shipping, and further declining inventories. Thus, Yardeni’s thesis of “using pullbacks driven by ceasefire optimism to add energy exposure” is essentially a bet on a longer, harder-to-reverse supply reconfiguration cycle, not just a reaction to short-term headlines.