On Monday morning, it looked like President Donald Trump, the self-proclaimed “Master of the Deal,” had done it again.
After roiling oil markets over the weekend with an ultimatum on Iran, he declared victory before the opening bell, posting about 15 points of agreement and pausing his threat to bomb the country’s power plants. Nearly $2 trillion was moved within minutes as Wall Street clamored to do what it has learned to do with this president: put some TACO dip on its proverbial chip.
TACO—Trump Always Chickens Out—became the defining trade of last year’s tariff wars after the shock dip on “Liberation Day” last April. The term was coined by FT journalist Robert Armstrong to describe the pattern Trump exhibited: Escalate, terrify, then reverse course and claim victory. When traders realized that Trump, at his heart a businessman, would never let markets dip back to their levels on April 2, 2025, they began to price in the bluster and bought the dip. It worked in 2025 because tariffs are a toggle: flip them on with a Truth Social post, flip them off with another one. Through this strategy, Trump secured diplomatic and economic concessions in Brazil, India, Japan and across Southeast Asia, all while never suffering from severe backlash by traders.
War, however, doesn’t so easily toggle back and forth. TACO has a hidden assumption baked in: that your counterparty wants off the roller coaster as much as you do. Especially with a wounded Iranian regime that has nothing to lose and made its survival synonymous with holding the global economy hostage.
Within hours of Trump’s announcement, Iranian state media denied any talks had occurred. The speaker of Iran’s parliament, taking a page out of Trump’s 2016 campaign playbook, wrote on X that it was “fakenews” designed to “manipulate financial and oil markets.” And as of Tuesday, it doesn’t seem like the primary objective —getting tankers to transit the Strait of Hormuz—has changed at all.
“There is no change in the status in the Strait of Hormuz, and every day that waterway remains closed to traffic, the world is losing over 15 million barrels of oil from inventories and stocks,” Rory Johnston, an oil market analyst, told Fortune. “The longer this goes on, the worse that situation is going to get.”
The Oil Air Pocket: Why Prices Are Holding — For Now
The White House has been effective, so far, at jawboning oil prices lower than the $120-$150 levels bearish commodities analysts have warned about. Every time Brent drifted much above $110, Trump or another official comes out and declares victory over Iran, or promises to start pulling back the war. Johnston says that works, for now, because the physical shortage hasn’t actually reached most of the world yet, leading to a gaping spread between the price of Dubai crude, which has been in the $120s and $130s, and Texas futures, which have hovered below $100.
“A lot of the physical shortage still hasn’t reached land,” Johnston said. “The tankers stopped flowing and you’re building this air pocket on the water of what normal trades look like. But eventually that air pocket hits land.”
He expects that to start happening within the next week or two.
“Eventually the paper barrels run against the physical barrels, and you have to reconcile,” Johnston said. “And you’re going to reconcile toward physical.”
Iran Is Not Playing by Trump’s Rules
It also takes two to TACO, as other analysts have written. The tariff TACOs worked because Trump’s counterparties, China, the EU or Canada, were rational economic actors who needed stability and were fine to take a face-saving deal to get it.
Iran is not so predictable. Its supreme leader is dead, its military infrastructure is decimated and four weeks in it’s still not behaving like a counterparty looking for an off-ramp. If anything, it’s behaving like one that thinks it’s winning.
Despite losing senior leadership and absorbing enormous punishment from US and Israeli strikes, Iran has effectively held the global economy hostage through the Strait of Hormuz. They’re exporting more oil now than before the war; its rate of missile and drone fire has picked up; and they’re now collecting a $2 million “toll” for ships to pass through. And its strikes have inflicted serious damage on energy infrastructure across Qatar, Saudi Arabia, Kuwait, Bahrain, and the UAE—the very US allies Trump promised to protect.
Tehran has been escalating its demands. Iranian officials have called for massive reparations, the expulsion of US forces from the region, and to make the Strait’s toll booth status more permanent, with every passing ship required to pay Tehran for transit. One adviser to the supreme leader told Iranian state media that Iran would turn itself “from a sanctioned country to an enhanced power in the region and the world.”
Johnston thinks the administration badly misread the situation from the start.
“I think Trump thought he could do in Iran what he did in Venezuela,” Johnston said. In Caracas, the US captured and arrested former President Nicolas Maduro, and a US-friendly pragmatist from within the government emerged to cut a deal. The expectation was that after the killing of Iran’s supreme leader, someone similar would step forward in Tehran.
“The Iranian regime is just deeply, deeply different in about every single way, politically, from the Chavista regime in Venezuela,” Johnston said. “I think he thought that once he killed the supreme leader and a bunch of the leadership, someone would come forward and beg for a deal. And that just isn’t what has happened.”
What happened instead is that the Islamic Revolutionary Guard Corps appears to have consolidated control, and the IRGC has a long history of being more maximalist and hardline than the regime it is replacing. During the Iran-Iraq war, Iran liberated its territory by 1982 but didn’t agree to a ceasefire until 1988, after hundreds of thousands of additional casualties and an international hostage crisis.
Two Options, Both Historically Anathema to Trump
That leaves Trump staring at two options, both of which are historically anathema to him.
Option one: escalate to a ground war. US Marine Expeditionary Units are assembling and will arrive in the Middle East on the same day the truce is scheduled to run out, Friday. The administration might soon have the capability to invade Kharg Island or occupy coastal positions around the Strait. Trump has called this “a simple military maneuver” with “so little risk,” which military experts disagree with.
Option two: accept a deal that falls short of the war’s stated objectives and walk away, leaving Europe to manage the Strait. But walking away would leave US Gulf allies exposed to an angry, emboldened Iran that has just demonstrated its ability to destroy their energy infrastructure at will. It would leave Iran’s stocks of highly enriched uranium largely unsecured, and it would also give Tehran the kind of mythologized martyr narrative—we withstood America and Israel—that the Islamic Republic used after the Iran-Iraq war to entrench itself for decades.
“My bias remains that he’s going to pull back, because I think he needs to pull back,” Johnston said. “But I thought that for most of the war thus far, and I’ve been wrong.”
