Trump's "TACO" reappears—will the energy market follow his script?

According to CCTV News, on March 23 local time, before the deadline set by U.S. President Trump for Iran to open the Strait of Hormuz, the U.S. side released information stating that “there has been very good and productive dialogue with Iran,” and the dialogue will continue until this weekend.

The Iranian side firmly denied this, stating that Iran’s position on the Strait of Hormuz issue and the conditions for ending conflicts has not changed.

On the 21st, U.S. President Trump posted on social media that if Iran fails to fully open the Strait of Hormuz within the next 48 hours, the U.S. will strike various power plants within Iran and completely destroy them.

In response to Trump’s statement, the Iranian Central Command under General Qatam al-Anbiya immediately issued a warning, stating that if Iran’s fuel and energy infrastructure is attacked by the enemy, all energy infrastructure, information technology systems, and desalination facilities of the U.S. and its allies in the region will become targets.

Currently, the U.S. and Iran each hold their respective positions, and there is still no conclusion on the issue of opening the Strait of Hormuz. Against this backdrop, international oil prices fell sharply by more than 10% on the 23rd, with WTI crude oil dropping by 12.96% at one point, reporting at $85.5 per barrel; Brent crude oil fell by 13.28%, reporting at $92.275 per barrel; however, after more news emerged, international oil prices rebounded. As of the time of publication, Brent crude oil had risen back above $100 per barrel; WTI crude oil reported at $92.3 per barrel, while spot gold also fell again to around $4,333 per ounce.

The Oxford Economics Institute, in its latest report, changed the baseline scenario assumption to the Strait of Hormuz remaining closed to navigation until May, and the intensifying geopolitical tensions will continue to disrupt trade in the second and third quarters. “We have significantly raised our oil price forecast, expecting the average price of Brent crude oil to reach $114 per barrel in the second quarter. We assume that the Strait’s navigability will return to about half of the pre-conflict level by May, and the disruption of trade will slowly ease throughout the remainder of 2026.”

What is the probability of a rapid drop in oil prices?

According to reports, an Israeli official stated that the U.S. has set April 9 as the target date for ending the war with Iran. The official indicated that talks between Iran and the U.S. are expected to take place later this week in Pakistan.

However, the Iranian side does not agree with this. According to CCTV reports, on the 23rd local time, a senior Iranian official stated that President Trump has no authority to set conditions or deadlines for negotiations. The official noted that Iran and the U.S. have communicated through Egypt and Turkey to ease tensions, but the U.S. has still not accepted Iran’s two core conditions: compensation for damages and acknowledgment of violations against Iran. The official also stated that the issue of closing the Strait of Hormuz and laying mines remains among Iran’s options for responding to potential actions.

In the scenario of “immediate ceasefire, reopening of the Strait of Hormuz,” global financial services company Ebury believes that if a ceasefire is achieved before the end of March, ship traffic through the Strait of Hormuz could resume within two weeks, but this scenario has a very low likelihood, less than 10%.

Ebury’s market strategy director Matthew Ryan told a reporter from Yicai that in this scenario, oil prices could drop by 30% or more within a few days, which is not uncommon in history. “The extent of the drop will depend on whether the Strait of Hormuz is partially or fully reopened. U.S. military actions alone are insufficient to achieve the latter.”

Ebury’s second scenario is “conflict ends quickly, and the Strait of Hormuz reopens in the short term.” Its main assumption is that the conflict begins to de-escalate before the end of March and ends within the next 4 to 5 weeks (i.e., by the end of April), with the flow of oil through the Strait of Hormuz resuming in about a month, and this scenario has a moderate probability.

Ryan indicated to reporters that in this scenario, oil prices would significantly drop after reaching recent highs. “If the Strait of Hormuz achieves a full or nearly full reopening, the supply shock will be temporary (unlike the Russia-Ukraine conflict). Brent crude may stabilize in the range of $80 to $90 per barrel. The IEA’s emergency release of oil reserves could buffer the supply shock in the short term (3 to 4 weeks).”

He further explained that history shows oil prices can reverse quickly: during the Gulf War from 1990 to 1991, oil prices doubled from July 1990 to the end of the year, but fell by 33% in a single day after the conflict was resolved, and returned to previous levels by mid-1991.

In terms of the macroeconomy, Ryan believes that inflation will rise moderately by 0.1 to 0.2 percentage points, with limited impact on global growth and no additional recession risk. Central banks are unlikely to overreact; for instance, the European Central Bank and the Bank of England may keep interest rates unchanged or tighten slightly, while the Federal Reserve may lower interest rates in the second half of the year.

The Oxford Economics Institute also indicated in its report that the U.S. side is temporarily delaying strikes to reach an agreement, which may be the first step toward de-escalation, but there remains significant uncertainty regarding how subsequent events will unfold. “Therefore, it is still too early to assert that the navigability of the Strait will return to normal sooner than our baseline scenario (closed until May).”

“Of the 18 million barrels per day of crude oil typically transported through the Strait, about 7 million barrels per day are being redirected, transported via pipeline to Saudi Arabia’s Yanbu port and the UAE’s Fujairah port. We estimate that as some maritime transport flows resume in May, the average supply disruption for the second quarter will be about 7.5 million barrels per day. These alternative transport routes are becoming increasingly susceptible to attacks, and any disruption on these routes would lead to a significant spike in oil prices,” the institute warned.

How high can oil prices soar?

If the Strait of Hormuz is actually closed for several months rather than weeks, such as 1 to 3 months, what will happen to oil prices? Ryan believes this likelihood is moderate (30% to 35%).

“Oil prices could break through the recent high of $118 per barrel and may continue to operate at high levels in the range of $120 to $150 per barrel.” He explained that the reserves released by the IEA can only cover the blockade of the Strait of Hormuz for 3 to 4 weeks, which is a short-term response measure.

In terms of the macroeconomy, at that time, global inflation is expected to rise by 0.5 to 1 percentage points directly due to the transmission of energy prices and transportation costs. “In the later stages of this scenario, the secondary inflation effects will intensify, and inflation expectations may face a de-anchoring risk.” He stated that the blockade of the Strait of Hormuz could cause global GDP growth to slow by 0.2 to 0.5 percentage points, primarily due to rising prices, supply chain disruptions, and increased uncertainty further exacerbating the economic slowdown.

“The downside risks faced by Europe and Asia are the most pronounced. The European Central Bank and the Bank of England will be inclined to raise interest rates, while the Federal Reserve may remain on hold, which will further amplify the downside risks to global growth,” Ryan added.

In terms of trade flows, the flow from the Middle East to Asia and Europe will decline significantly, with maritime export volumes potentially decreasing by 60% to 75%, primarily involving oil and liquefied natural gas.

At the same time, energy-importing countries will begin to turn to alternative sources, with U.S. crude oil and liquefied natural gas exports to Asia potentially increasing by 30% to 50%, and Brazil’s crude oil exports to India and Europe increasing by 25% to 50%.

“The scale of reallocating non-energy trade routes is relatively small. Routing around the Cape of Good Hope will bring additional delays to trade flows, further increasing price pressures,” he stated.

In the final scenario, that is, the “long-term blockade of the Strait of Hormuz,” assuming the conflict lasts more than 6 months, and the Strait remains closed (or only partially reopened) for several months, the likelihood is also moderate.

Ryan stated that in the most pessimistic scenario, Brent crude futures could rise to $150 per barrel or higher, with major economies falling into persistent stagflation. Global inflation could rise by 1.0 to 1.5 percentage points, with secondary effects fully manifesting, such as the wage-price spiral (upward), rising food prices, and de-anchoring of inflation expectations.

Ryan noted that the impact on growth will be more severe, particularly for net oil-importing countries (Eurozone, UK, Asia), with a possibility of the Eurozone falling into recession.

“Central banks will be caught in a dilemma: facing rising inflation on one hand and the risk of economic slowdown or even recession on the other. However, as officials prioritize controlling inflation, the probability of significant interest rate hikes will increase,” he explained.

In terms of trade flows, energy exports from the Middle East to Asia and Europe will suffer severe impacts, and non-energy exports from the Middle East will also be affected, including fertilizer exports from the Middle East to Asia; exports of petrochemical products, fertilizers, plastics, polymers, rubber, aluminum, and other unrefined metals to Brazil and Africa; electronics, batteries, and pharmaceuticals to Asia; and Qatar’s helium exports globally.

At the same time, alternative energy flows will accelerate, such as increased U.S. oil and liquefied natural gas exports to Asia and Europe.

Ryan explained to reporters that non-energy alternative trade flows are also expected to perform actively, but the scale is limited, including increased fertilizer exports from the U.S. and Canada to Asia and Europe, and increased helium exports from the U.S. to Asia and Europe.

Ryan stated that the beneficiaries will be energy, defense, renewable energy, and shipping industries from non-Gulf regions, while the losers will be energy-intensive industries (aviation, automotive, utilities); Asia’s manufacturing and petrochemical industries will be severely impacted, and logistics, tourism, and luxury goods industries will also face pressure.

“The semiconductor and artificial intelligence hardware industries also face risks: Qatar produces about one-third of the world’s helium, which is a key material for cooling chips,” he added.

The report from the Oxford Economics Institute states that with additional supplies in place, coupled with the gradual easing of supply chain pressures and geopolitical risks in the Gulf region in the second half of the year, “we expect oil prices to fall accordingly, with Brent crude oil expected to close at $78 per barrel by the end of the year. However, this price is $20 per barrel higher than our end-of-year forecast made in February.”

(This article is from Yicai.)