Citi, a major Wall Street financial institution, has released a research report stating that while factors such as inventory drawdowns, strategic petroleum reserve releases, reduced imports by Asian nations due to high prices, relatively weaker demand, and periodic de-escalation signals from conflicting parties have helped buffer the impact of rising energy costs, if prolonged peace negotiations between the U.S. and Iran remain difficult, leading to a protracted blockade and control of the Strait of Hormuz, the international oil benchmark—Brent crude—could rise further from its recent pullback near $100 and potentially set new cyclical highs. As the Hormuz crisis shows no signs of quick resolution, Wall Street traders appear to be shifting from the "TACO" trading strategy (betting on further positive progress in U.S.-Iran talks or that Trump always backs down) to the "NACHO" strategy—assuming long-term Strait closure is inevitable (Not A Chance Hormuz Opens). Although Brent crude has retreated from a wartime peak of $126 per barrel in late April, it remains above $100, nearly 50% higher than before the conflict escalated. 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 new, more aggressive tariff threats or other major threats causing market plunges, global equity and bond investors bet that he would ultimately retreat or that implemented policies would be significantly weaker than his verbal threats, leading them to buy the dip aggressively during appropriate low periods, betting on a substantial market rebound soon. However, an increasing number of traders are now leaning toward the "NACHO" trading theme. Citi warns that upside risks to oil prices remain unresolved. Citi strategists stated that their base-case scenario still assumes significant easing of Hormuz disruptions by the end of May, but they noted that the difficulty in reaching a U.S.-Iran agreement has increased near-term upside risks for oil prices. The Wall Street giant maintains a 0-3 month Brent price forecast at a high of $120 per barrel; it also expects Brent to average $110 per barrel in Q2, then decline to $95 in Q3 and $80 in Q4. Citing ship-tracking data, Citi noted that China's oil imports in April and May may decrease by approximately 2.4 million barrels per day, dropping from an average of about 11.6 million bpd in 2025 to around 9.2 million bpd, which also alleviates supply-side pressure on the global oil market. However, Citi strategists added: "We continue to believe that the crude futures market underestimates the potential duration of a Hormuz blockade and the tail risks." Citi also stated that even if the Strait of Hormuz reopens in an orderly manner, global oil supply will remain very tight in the short to medium term, and a return to pre-conflict transportation levels from late February may be quite distant. During this period, global panic buying from Middle Eastern nations or stockpiling due to inventory fears could significantly push oil prices higher. Overall oil production in the Middle East has been substantially reduced due to the Iran war, and the logic behind this production cut and oil price surge is no longer just "Hormuz transportation disruptions" but a triple combination of "production cuts + export vessel capacity constraints + infrastructure damage from missile strikes." These factors explain why veteran Wall Street strategists like Ed Yardeni, founder of investment advisory firm Yardeni Research, have recently emphasized that in an environment where the global economy is already bearing high financing costs and geopolitical shocks, energy stocks are transitioning from cyclical trades to strategic overweight positions in portfolios. Even if the Strait reopens, restoring crude flows, repairing infrastructure, deploying fleets, ramping up refineries, and replenishing inventories will take months; IEA chief Birol even stated that a significant portion of oil and gas capacity disrupted by the war could take up to two years to return to pre-war levels. In other words, a ceasefire can only compress the front-end panic premium but cannot quickly erase the back-end supply gap and inventory vacuum. The "NACHO" trading theme is rapidly sweeping Wall Street! The prolonged Hormuz blockade is reshaping oil price, inflation, and rate expectations. As the Hormuz crisis shows no quick resolution, Wall Street traders are shifting from "TACO" trades (betting on short-term intervention or Trump policy retreats) to "NACHO" trades. Although inventory drawdowns, strategic reserve releases, and reduced Chinese imports have somewhat buffered oil price pressures, the stalemate in U.S.-Iran negotiations and the distant prospect of Hormuz navigation resuming increase near-term upside risks for crude prices, providing macro logic support for "NACHO" trades. Brent crude, while down from a wartime peak of $126 per barrel in late April, remains above $100, about 50% higher than pre-escalation levels. The shipping insurance market offers more direct risk pricing signals: war risk premiums once reached about 2.5% of hull value, compared to just 0.1% pre-war, and remain eight times pre-war levels. The market is gradually accepting the "normalization" of Strait blockades, with not only oil markets but also shipping insurance and rate markets pricing in prolonged disruptions. The rate market reflects the prolonged energy shock most clearly: short-end rates are being repriced, and yield curve flattening trends are significant, indicating heightened investor concern over sustained high oil prices and inflation risks. "NACHO" trades not only affect short-term speculation but also convey macro-structural signals: the Hormuz crisis's impact on global energy supply chains, inflation expectations, and financial asset pricing may far exceed previous market expectations. Investors must adjust strategies, incorporating sustained high oil prices and supply chain risks into medium- to long-term investment decision frameworks. From a macro and commodities perspective, Wall Street veteran Ed Yardeni's current bullish stance on energy stocks and judgment that "even if the war ends, oil prices won't return to pre-conflict levels" essentially defines this oil price shock as structural supply damage rather than a one-off geopolitical risk premium. What truly determines oil price trends may no longer be just whether hostilities pause, but the "post-war repricing" of the entire energy chain: the Strait of Hormuz, marine insurance, tanker capacity, refinery repairs, and inventory rebuilding. Although the U.S. government has extended the ceasefire, the blockade of Iranian ports continues. The energy trade market, including oil, does not follow a linear logic of "ceasefire agreement = supply restoration." Once the oil price center is permanently elevated, the global disinflation path will become stickier, the Fed and other central banks' rate-cut room will be compressed, and risk asset valuations will remain constrained. In contrast, the energy sector can both benefit from profit improvements driven by high oil prices and hedge against tail risks like war resumption, renewed shipping disruptions, and further inventory declines. Therefore, Yardeni's advice to "use pullbacks from ceasefire optimism to increase energy holdings" essentially bets on a longer-tailed, harder-to-reverse supply restructuring cycle, not on short-term headlines.
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