Weekly house view | It takes two to TACO
The week in review
The Strait of Hormuz remains closed, and the Iranian regime appears to be playing a long game, with a strategy to maximise economic disruption. This calls into question the so-called TACO theory (Trump Always Chickens Out), which holds that the US president softens or reverses an aggressive policy after a negative market reaction—as happened after his imposition of “Liberation Day” tariffs in 2025. This time, it seems, it takes two to TACO. The way the war ends matters as much as the timing, given the importance to the global economy of oil supplies via the Strait.
China consumes about 90% of Iranian oil exports that can pass through the waterway. So far, oil in transit and storage has filled the gap. But the global economy can only last two to three months without Gulf oil. US President Donald Trump said he wants European and Asian countries, including China, to help open the Strait. WTI crude oil prices rose 8.6% last week.
The S&P 500 fell 1.6%1 (in USD). German Bund yields hit their highest level since October 2023, reflecting higher inflation expectations.
The Iran conflict has driven oil market volatility, with price swings between nearly USD 120 and just above USD 80. Already, Thailand and South Korea have announced caps on fuel prices. In the US, a 30% rise in gasoline prices would offset the fiscal boost from higher tax refunds, both around USD 100 bn.
Quote of the week
India’s foreign minister, S. Jaishankar, said he had been in talks with Iran about allowing shipping to restart through the Strait of Hormuz. “I am at the moment engaged in talking to them and my talking has yielded some results,” he told the Financial Times. “This is ongoing.”
Key data
US fourth quarter GDP was revised lower to 0.7% from 1.4%. Core US CPI, excluding volatile food and energy prices, came in at 2.5% year-over-year for February, unchanged from January. The University of Michigan’s consumer sentiment index fell 1.1 points to 55.5 in the March preliminary report.
China had its highest trade surplus on record in January-February at USD 214 bn (vs USD 179 bn expected). China’s core CPI rose 1.8% year-on-year in February 2026, marking the highest level since March 2019.
