U.S. President Donald Trump rejected Iran’s latest response to its proposal to end the war in the Middle East, leading to the continued closure of the strategically vital Strait of Hormuz. The ongoing blockade of the Port of Hormuz has effectively severed a critical global supply route for crude oil, natural gas, and fuel, driving up energy prices and intensifying concerns about inflation.
According to Zhitong Finance, after U.S. President Donald Trump rejected Iran’s latest long-term peace proposal, both Brent crude futures, the international benchmark for oil prices, and WTI crude futures, the pricing benchmark for North American oil, surged significantly at the start of Asian trading on Monday. The U.S. dollar strengthened, while S&P 500 futures opened notably lower in early Asian trading. The latest geopolitical developments undoubtedly extend the de facto dual blockade by the U.S. and Iran over the Strait of Hormuz, a crucial chokepoint for the global energy system, potentially driving international oil prices higher. Additionally, momentum trading indicators have reached extreme levels that have historically signaled short-term sharp sell-offs, which may collectively push the recent global stock market rally fueled by AI investment enthusiasm toward a correction trajectory.
Brent Last Day Financial Futures (JUL6) (BZmain.US) prices surged aggressively by 3.5% to the key bullish threshold of $105 per barrel, while Crude Oil Futures (JUN6) (CLmain.US) once rose near the $100 mark. According to reports, U.S. President Trump stated in a newly published social media post that Iran’s response to its long-term peace proposal aimed at ending the war in the Middle East was ‘completely unacceptable.’ Meanwhile, following a series of escalating hostile actions, both sides are struggling to maintain a fragile temporary ceasefire agreement, tacitly adopting an approach in the Strait of Hormuz characterized by ‘military control of the strait while avoiding direct confrontations as much as possible.’
Since the outbreak of the Iran conflict at the end of February, the Strait of Hormuz has been effectively blockaded, cutting off one of the most crucial shipping routes for supplying crude oil, natural gas, and refined fuel products to global customers. This disruption has significantly driven up energy prices and exacerbated inflation concerns among global investors. The International Energy Agency (IEA) stated that the supply disruption caused by this geopolitical conflict in the Strait of Hormuz is creating the largest supply-side shock in human history.
Citi released a research report stating that if the long-term peace negotiations between the United States and Iran remain difficult, leading to the prolonged blockade and control of the Strait of Hormuz, the international oil price benchmark—Brent crude oil prices—may rise further from their recent noticeable pullback around the $100 mark, potentially even setting new phase highs.
Strategists at Citigroup stated that their baseline forecast scenario still assumes that disruptions in the Strait of Hormuz will ease significantly by the end of May. However, they noted that the increased difficulty of reaching an agreement between the U.S. and Iran has raised the risk of a significant near-term oil price increase. The Wall Street giant maintains its high-price forecast for Brent crude oil prices over the next 0-3 months at $120 per barrel. It also expects Brent crude oil’s second-quarter average price to retreat to $110 per barrel, followed by $95 in the third quarter and $80 in the fourth quarter.
From the Illusion of Ceasefire to a New Round of Supply Shocks! Trump’s ‘Completely Unacceptable’ Statement Reignites the Oil Market
The round of geopolitical conflict that erupted on February 28 has severely disrupted the global energy supply market. Shipping through the Strait of Hormuz, which accounts for approximately 20% to 30% of global oil and natural gas transportation, has almost completely stalled, causing supply tightness and significantly driving up oil prices. As a result, the international crude oil price benchmark—Brent crude futures—surged more than 50% in the first quarter, hovering near $100 per barrel. Thereafter, amid occasional signals of further peace talks, prices once retreated to around $90 per barrel. However, as of recently, with the Strait of Hormuz still under extremely strict control and blockade by both militaries and the prospects of a long-term peace agreement increasingly dim, prices have broken back above the $100 mark.
As shown in the chart above, oil prices surged sharply after Trump rejected Iran’s peace proposal—the U.S. President described Iran’s response as “unacceptable.”
Over the weekend, media reports indicated that Iran had proposed transferring part of its stockpile of highly enriched uranium to a third country but refused to dismantle its largest nuclear facility. However, shortly thereafter, Iran’s semi-official news agency Tasnim disputed the aforementioned media reports.
On Sunday, a concentrated drone attack briefly ignited a large cargo ship in the Persian Gulf near Qatar. This was the latest notable shipping attack in the region since the temporary ceasefire agreement reached between the U.S. and Iran in early April. The United Arab Emirates (UAE) and Kuwait also stated that they intercepted several hostile drone attacks, but did not disclose which military force the drones originated from.
Amin Nasser, CEO of Saudi Aramco, stated on Sunday that if the restricted shipping through the Strait of Hormuz persists for more than a few weeks, the oil supply market may not normalize until 2027. The company has managed to reroute some of its oil flows via Yanbu Port in its western coastal region to offset supply losses, but this volume is negligible compared to the routine transportation through the Strait of Hormuz.
Saudi Aramco’s CEO Amin Nasser warned that the market has already lost approximately 1 billion barrels of oil over the past two months due to disruptions in Hormuz shipping. Even if passage resumes, low inventories, years of underinvestment, and the need to rebuild logistics will slow the normalization of the oil market. Aramco’s warning essentially re-prices the market: ‘reopening the strait’ does not equate to ‘immediate supply recovery.’ If the blockade lasts only a short time, the market will still require months to address inventory gaps, shipping mismatches, insurance costs, and refinery restocking; if it drags on for several more weeks, the supply-demand gap may extend into the next year, potentially delaying normalization until 2027.
As described in Citi’s latest research report, Wall Street strategists increasingly believe that shipping through the Strait of Hormuz will remain impaired until the second half of this year. The majority of institutional investors surveyed by Goldman Sachs expect shipping volumes through this narrow waterway to continue being disrupted beyond the end of June.
Although a small number of shipments have successfully passed through the Strait of Hormuz at the risk of missile attacks – such as the UAE and Saudi Arabia quietly navigating several tankers out – the total flow remains only a fraction of pre-war levels. Qatar has also managed to send out a few vessels carrying large reserves of liquefied natural gas (LNG), marking the first LNG shipments through the strait since geopolitical tensions began at the end of February.
Israeli Prime Minister Benjamin Netanyahu warned in an interview with CBS’s ’60 Minutes’ on Sunday that the war “is not over.” He stated that more work needs to be done to fully dismantle Iran’s nuclear capabilities and eliminate its stockpile of highly enriched uranium.
Trump’s latest threatening remarks triggered massive trading when Asian financial markets opened this week. Over 4,000 contracts of Brent crude oil futures for July were traded within the first five minutes. By comparison, the average trading volume in the initial minutes of recent Asian market trading days was less than 1,000 contracts.
“TACO” fades as “NACHO” takes center stage?
In the view of some Wall Street strategists, the Hormuz crisis has escalated from a ‘short-term geopolitical shock’ to a ‘global energy system repair cycle issue.’ This implies that the risk premium in oil prices remains sticky, and the market cannot merely trade on ‘ceasefire headlines’; it must now focus on inventory depletion, shipping insurance, alternative route capacity, and restocking cycles. Brent crude returning to around $105 per barrel reflects investors beginning to accept that high oil prices may become normalized. This will continue to constrain the Federal Reserve’s rate-cutting space while boosting the relative attractiveness of large energy stocks, oil services, shipping insurance, and U.S. shale. Simultaneously, it pressures aviation, chemicals, consumer sectors, and some unprofitable, interest-rate-sensitive, high-valuation growth stocks.
In other words, even if the Strait of Hormuz reopens tomorrow, global oil supply is not a ‘one-click restart.’ If the blockade continues to drag on, the energy shock will evolve from price volatility into a macroeconomic inflation and supply chain repricing theme spanning 2026–2027.
Since Trump launched a global trade war in April 2025, traders have widely adopted the ‘TACO’ strategy (Trump Always Chickens Out). Whenever Trump issues new, more aggressive tariff threats or makes other significant threats causing market crashes, global equity and bond market investors bet that he will ultimately back down or that the implemented policies will be significantly weaker than his verbal threats. They then choose to aggressively bottom-fish during opportune downturns, heavily betting on a substantial market rebound in the near future.
However, as the most classic momentum trading strategy in the stock market—relying on numerous technical indicators or proprietary quantitative models customized by institutions to buy winners and massively sell losers—has reached an extreme level that has historically signaled short-term violent sell-offs multiple times, it implies that the bullish tone and main trend of the AI-driven global equity market have not yet been invalidated. However, at the short-term level, the market may soon transition from a ‘profit revision rally’ into a ‘momentum trading overheating-driven correction phase.’ An increasing number of traders are now inclined to bet on the ‘NACHO’ trading theme.
As the crisis in the Strait of Hormuz shows no sign of rapid resolution, Wall Street traders seem to be shifting from the ‘TACO’ trading strategy (betting on further positive progress in U.S.-Iran peace talks or Trump’s habitual reluctance to escalate conflicts) to the ‘NACHO’ trading strategy—assuming that the long-term blockade of the strait is inevitable (Not A Chance Hormuz Opens). Although Brent crude oil prices have retreated from the wartime high of $126 per barrel at the end of April, they remain above $100.
Citi stated that even if the Strait of Hormuz is orderly unblocked, global oil supply will remain extremely limited in the short to medium term, with a significant gap remaining before returning to pre-geopolitical conflict transportation levels at the end of February. During this period, global panic-buying of oil from Middle Eastern countries or stockpiling due to inventory fears could significantly drive up oil prices.
The overall production of oil in the Middle East has seen a substantial reduction due to the Iran conflict, and the logic behind this production cut and the surge in oil prices is no longer solely due to “disruptions in shipping through the Strait of Hormuz,” but rather a triple combination of factors: “production cuts + disrupted export shipping capacity + infrastructure damage from missile strikes.” These factors explain why senior Wall Street strategists like Ed Yardeni, founder of investment consultancy Yardeni Research, recently emphasized that, in an environment where the global economy already faces high financing costs and geopolitical shocks, energy stocks are transitioning from cyclical trades to becoming strategically overweight positions in portfolios.
As momentum-focused traders struggle to find clues about a ceasefire in the Iran war, is the global market shifting back from a momentum frenzy to a geopolitical risk mode?
Historical data statistics show that increasingly extreme momentum trading suggests that the AI investment boom-driven bull market in U.S. equities and even global stock markets has entered the late euphoric stage of ‘overheating/crowded/high fragility.’ However, it more accurately signals a phase of downward correction or rising risks of sharp market rotation, rather than the inevitable end of the bull market. Particularly, the typical combination of inflation concerns, increasingly extreme momentum trading, and high equity market valuations usually indicates that the market has overpriced expectations for fundamental expansion—when fundamental data or macroeconomic conditions deviate significantly from expectations (such as profit downgrades, substantial changes in interest rate expectations, or rising financing costs related to the yield curve), the bull market is more prone to phased corrections.
After Trump rejected the latest peace proposal, investors betting on heated market momentum may face a severe reality check when Asian markets resume trading. Trump stated that Iran’s latest response to ending its ten-week conflict with the United States was ‘completely unacceptable.’ As market concerns about inflation and even ‘stagflation’ rapidly escalate, both Brent crude oil and WTI crude oil surged higher in early Asian trading, while the U.S. dollar significantly strengthened against major currencies.
Jason Wong, a senior strategist at the Bank of New Zealand, said: ‘Trump’s rejection of Iran’s latest peace plan may push the financial markets into a ‘risk-off’ trading mode at the start of this week, reversing some of the price movements we saw last week.’ ‘This trend may continue during early trading.’
Trump proposed that Iran orderly allow ships to pass through the Strait of Hormuz, while Washington would lift the blockade on Iranian ports next month. However, this proposal does not appear to have been fully accepted by Iran, with both sides still exchanging warning fire on shipping attempting to navigate the Strait of Hormuz.
Global stock markets surged last week, with the S&P 500 Index and Nasdaq 100 Index continuing to hit new records. The 10-year U.S. Treasury yield rose, and cryptocurrencies also increased. A robust U.S. jobs report, combined with a string of strong corporate earnings, reinforced market speculation that the world’s largest economy remains resilient despite energy pressures caused by the Iran war.
By the close of the U.S. stock market on Friday, strong employment data and a trading frenzy centered around AI computing power jointly pushed the S&P 500 Index and Nasdaq 100 Index to new all-time highs, with the S&P 500 Index gaining for six consecutive weeks. The Philadelphia Semiconductor Index, regarded as a global bellwether for chip stocks and an ‘AI computing power investment barometer’ encompassing leaders in the global AI computing power supply chain such as NVIDIA, AMD, Intel, and Micron, also rose for six consecutive weeks, surging nearly 250% from its April low. Measured by price-to-sales ratio, the valuation of the Philadelphia Semiconductor Index has hit a record high.
Julien Lafargue, Chief Market Strategist at Barclays Private Bank & Wealth Management, stated: “With the earnings season now largely over, investors’ focus will undoubtedly remain firmly on the Strait of Hormuz and whether there is a significant improvement in the shipping traffic of large oil tankers through this critical chokepoint.” According to compiled data from institutions, approximately 82% of S&P 500 index constituents exceeded profit expectations in the first quarter.
The momentum indicator’s rally has reached extreme levels that have historically signaled short-term sharp sell-offs on multiple occasions. Goldman Sachs’ trading division wrote earlier this week, based on prime brokerage data, that valuations of the highest momentum stocks have become excessively stretched, with market positioning now among the highest levels in recent years. Momentum trading in the context of Wall Street institutions does not rely solely on a few technical indicators; instead, it employs customized quantitative models incorporating metrics such as relative strength, returns over the past 6-12 months (excluding the most recent one-month reversal effect), volatility adjustments, industry neutrality, risk models, crowding, fund flows, and volume signals to drive so-called momentum trading strategies or momentum factors.
Homin Lee, Senior Strategist at Lombard Odier Asset Management, noted: “If attempts by vessels to traverse the Strait of Hormuz begin to succeed in the coming week, they will serve as a key test for assessing whether there is at least a partial restoration of maritime passage through the strait.” “We are open to the possibility that the latest alarming headlines surrounding the strait do not reflect an escalation toward another major confrontation but rather represent tacit negotiations over the post-conflict arrangements between the U.S. and Iran.”
New consumer price data due next week may confirm that the outlook for U.S. inflation remains a threat. Economists surveyed by institutions estimate a median forecast of a significant 0.6% month-over-month increase in the U.S. Consumer Price Index (CPI) for April. This follows the largest monthly rise recorded in March since 2022. The CPI report from the U.S. Bureau of Labor Statistics is scheduled for release on Tuesday.
However, the Federal Reserve is currently seen as likely to maintain benchmark interest rates unchanged for an extended period to observe how the impact of surging oil prices unfolds. Money market pricing continues to indicate that the Fed will keep rates stable throughout this year.
A media outlet reported on Sunday that Dan Ivascyn, Chief Investment Officer of Pimco, the world’s largest fixed-income investment giant, said in an interview that the spike in energy prices associated with Iran’s closure of the Strait of Hormuz presents new challenges for Federal Reserve policymakers, who have been striving to bring inflation down to the central bank’s 2% target. Ivascyn remarked: “The U.S. is further away from that scenario, but given today’s circumstances, you would likely see more monetary tightening in Europe, the UK, and perhaps even Japan. I wouldn’t entirely rule out the possibility of such a situation occurring in the U.S. either.”
Editor/Joe
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