The Strait of Hormuz has been closed for three months, yet heavily traded crude remains around $94 per barrel, far below earlier warnings of $150 to $200. Oil prices rose only about 2 percent after a declaration that there was no pressure to reach a peace deal. Some supply loss has been offset by drawing down oil reserves, but that does not fully explain the stability. Oil pricing also depends on expectations for the near future. The market appears to assume Hormuz will reopen soon and that oil will flow again. That expectation is tied to a belief that Trump will back down once economic pain becomes sufficiently high, often framed as the TACO theory.
"When the war broke out, experts warned that if the Strait of Hormuz remained closed for more than a few weeks, oil prices would spike to $150 or $200 a barrel. The strait has now been closed for three months. Yet the price for a barrel of the most heavily traded type of crude oil sits at about $94, not so far from where it was in early March, shortly after the war broke out."
"Even after Trump's latest declaration, in yesterday's Cabinet meeting, that he felt no pressure to reach a peace deal ("I don't care about the midterms," he said), crude prices jumped by only 2 percent. "The math just doesn't add up," Rory Johnston, an oil-markets analyst who writes the widely cited Commodity Context newsletter, told me. "For people like myself who spend all day analyzing this stuff, we're looking at prices wondering: Am I going insane? What is happening?""
"The price of a barrel of oil reflects not just physical realities today, but expectations about what the market will look like in the near future. For the past three months, the global oil market seems to have been operating under the assumption that, before too long, the Strait of Hormuz will reopen and oil will start flowing again."
"That assumption is rooted in a deeper underlying belief: that Trump will inevitably back down once the economic pain gets high enough. This is the so-called TACO theory of Trump's decision making, as in "Trump Always Chickens Out." "The market has correctly realized t"
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