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Is it really a TACO? This time, the United States probably won't be able to escape easily. Iran is not the second Venezuela.
Key Points
The US-Iran conflict marks the disruption of the fragile political ecosystem in the Middle East. Until a new balance is found, the Strait of Hormuz may fall into a period of chaos.
The US-Iran conflict is both a result and an inevitable component of the global order restructuring, and it will serve as a catalyst for reshaping the new order.
This not only leads to a temporary rise in global crude oil prices but also signifies that the world is experiencing its fourth major oil supply transformation since World War II.
After the chaos ends, the future of global oil prices depends on whether the US can ultimately establish absolute dominance in the US-Iran conflict.
If the US ultimately wins, the global oil supply transformation will be comparable to the shale oil revolution of the past.
If the opposite occurs, even a moderate increase in the oil price center, if sustained long enough, will lead to deeper supply chain restructuring, financial liquidity swings, shifts in global capital influence, and even a reconfiguration of the global political map.
Summary
The US-Iran conflict appears to be an unexpected external shock, but in reality, it is not. It continues the pattern of isolated black swan events like the Russia-Ukraine conflict, Venezuela crises, and Trump’s tariff battles—these are all manifestations of the tearing apart of the old global order.
Markets tend to overestimate the short-term impact of geopolitical events and overlook their long-term profound significance.
We believe there are three historically significant implications of the US-Iran conflict that the market has underestimated. Only by understanding its historical position can we grasp where it leads in the course of history.
Due to its geopolitical and oil strategic importance, the Middle East has always been unstable. The current US-Iran conflict signifies that the core player in Middle Eastern geopolitics—Iran—and the US have fully exposed their contradictions.
The Strait of Hormuz holds a pivotal position in the global fossil energy system. Whether it’s controlling oil discourse or reinforcing the dollar’s foundation, the US is reluctant to relinquish influence over the US-Iran conflict.
This strategic importance means the US finds it difficult to truly achieve “TACO” (Total Control).
The complex geopolitics of the Strait of Hormuz, combined with the ongoing disruption of shipping, will first impact global energy prices, with ripple effects on food security, supply chain costs, financial stability, and conflicts of core national interests, including those of Iran and the US itself.
Moreover, Iran is not Venezuela; its economy, geopolitical position, oil influence, and religious history are not comparable. The quick victory the US achieved over Venezuela is unlikely to be replicated easily in Iran.
The US cannot truly TACO Iran in the US-Iran conflict, and a quick US victory is also unlikely. Therefore, the most probable outcome is that the Middle East’s geopolitical game will become fully exposed, and the Strait of Hormuz will remain in chaos for some time.
Chaos means the “throat” of Middle Eastern energy will no longer be smooth, and global resource prices will carry an uncertainty premium, potentially pushing the oil price center higher.
Before a new equilibrium is established, the Strait of Hormuz may remain chaotic for a period, and its impact on global oil supply could be more than a simple shock.
Systematic changes in oil supply will not only shift the price center but also profoundly influence global political, economic, and financial structures—patterns that have recurred throughout history.
Post-WWII, there have been three major oil supply transformations:
The US-Iran conflict implies that the Middle Eastern oil supply, accounting for 40% of global supply, will no longer be as stable as before. For the global oil market, this is akin to a systemic change—considered the fourth supply transformation since WWII.
Compared to the supply contractions caused by the two wars in the 1970s, the impact on oil prices this time may be similar in direction but less intense.
After the chaos subsides, the future of global oil prices hinges on whether the US can secure enough dominance in the US-Iran conflict.
If the US ultimately wins, its influence in the Middle East will strengthen, and US control over global oil supply could reach 65%, an unprecedented level of absolute control. This transformation in global oil supply would be comparable to the shale revolution.
If the US loses, its influence in the Middle East will weaken, and uncertainty in Middle Eastern oil supply could increase. Oil prices may be priced with higher uncertainty; even a moderate and sustained increase in the price center could have profound effects on global supply chains, capital markets, and international politics.
Historical supply transformations have always led to significant shifts in oil price centers, followed by supply chain restructuring, financial liquidity swings, energy industry revolutions, and shifts in global power—examples include five notable cases discussed below.
Main Text
Markets are well aware of how Iran’s situation can impact global assets, primarily depending on the extent and duration of the Strait of Hormuz being shut down. Predicting the trajectory of the US-Iran conflict is not just political speculation but provides a market observation dimension: what pattern will the oil price shocks from the conflict ultimately follow?
Three key questions about Iran’s situation:
Question 1: Can the US truly TACO Iran in the US-Iran conflict? That is, will the US easily relinquish control over the Persian Gulf’s oil supply?
Question 2: Can the Iran issue be resolved smoothly? As Trump previously claimed, can the conflict be ended within four weeks, and will Iran become the second Venezuela under US military pressure?
Question 3: If the US cannot truly TACO Iran nor achieve a quick victory, will the Strait of Hormuz fall into full chaos?
Is there a fourth possibility for the ultimate trajectory? If so, what changes will it bring to global oil prices? From a long-term supply-demand perspective, what does this imply?
These are the questions this article aims to explore.
After the unpredictable tariffs of 2025, the market has developed a habitual expectation of Trump’s TACO strategy.
The rule-shaking initiated by Trump made TACO the best choice, as vividly demonstrated during the year-long trade war. Recently, the US Congress declared the IEEPA tariffs unconstitutional, leaving a deep impression of Trump’s TACO approach.
Initially, the forward oil futures prices were not high, indicating the market did not see the US-Iran conflict as a sustained threat. Recently, Trump suggested the Middle East conflict might end soon, and oil prices have quickly retreated from high levels, easing liquidity panic, and the TACO scenario is repeating.
Iran’s importance to global oil supply and its strategic significance to the US make it unlikely that the US can easily achieve “TACO”.
The answer is evident when examining the share of global oil exports: Iran, specifically the Strait of Hormuz, holds strategic importance for the US that is unmatched.
Currently, about 40% of global oil supply comes from the Middle East, with Persian Gulf countries (UAE, Saudi Arabia, Iran, Iraq) accounting for 20%. Nearly 90% of their oil exports depend on transit through the Strait of Hormuz. This means Iran controls roughly 50% of Middle Eastern oil supply and 20% of global oil demand via Hormuz.
Controlling Hormuz would give the US influence over nearly 65% of global oil supply, reaching an unprecedented level of control.
Losing control of Hormuz would imply a significant reduction in US influence in the Middle East, with the US’s share of global oil supply dropping below 30%.
On the financial side, the dollar’s status as the global currency is partly supported by its role as the main settlement currency for oil. From a financial system perspective, Hormuz’s significance to the US is not just about fossil energy discourse but also about the dollar’s credibility and the US’s global economic and financial dominance.
Once energy security and the dollar system are involved, the strategic importance of Hormuz to the US becomes clear. It’s unlikely the US can easily extricate itself from Iran’s situation.
Since the US cannot easily disengage from Iran’s Middle Eastern geopolitics, can it escalate military efforts to achieve a quick victory and turn Iran into the second Venezuela?
Trump previously suggested resolving issues within four weeks, attempting to replicate the Venezuela model. But this time, confronting Iran, it’s unlikely to be straightforward.
The ongoing US-Iran conflict is increasingly priced in the market as a deepening scenario.
Whether considering absolute oil prices or global capital markets—including US, European, and Japanese bonds—the trend indicates that a quick US victory is becoming less likely.
Iran differs vastly from Venezuela; their population sizes, geography, religious influences, and historical contexts are not comparable.
Iran’s population is over three times that of Venezuela, its land area nearly double, and its GDP is about four times larger. Its oil exports are roughly twice those of Venezuela. Considering Hormuz’s impact on the entire Middle Eastern oil landscape and global oil patterns, Iran’s position in the oil system is far beyond Venezuela’s.
Iran’s religious stance and persistent opposition to the US further complicate a swift US victory.
Beyond Iran’s own factors, Hormuz involves many national interests. Under multi-national competition, a quick US victory over Iran is unrealistic.
Russia, East Asia, and Europe are all geopolitically connected to Iran. The US must consider not only Iran’s resistance but also the broader great power competition.
For Russia, Iran’s proximity means Russia does not want to see the US gain full control over Iran. Additionally, if the US controls Hormuz, it would dominate global oil discourse, reducing Russia’s strategic influence in the oil market, which Russia would oppose.
For Asian countries, Japan, South Korea, and India rely heavily on oil and gas transported through Hormuz. Europe also has natural gas routes via Hormuz. These economies—especially China and Europe—are major global manufacturing hubs.
A quick US victory would mean Hormuz falls under US control, affecting global energy prices, dollar hegemony, manufacturing costs, and supply chain security. Under great power rivalry, the US-Iran situation will face greater uncertainty.
If the US cannot truly TACO Iran or achieve a quick victory, does that mean the conflict will spiral into chaos, with the Strait of Hormuz being fully and permanently shut down?
We believe the probability of this scenario is low, mainly due to the geopolitical complexity of Hormuz.
For Iran, a complete shutdown of Hormuz would threaten its fiscal stability and civilian livelihood.
Resource-exporting countries typically rely heavily on resource revenues—over 50% of their fiscal income. In the Middle East, this dependence is even higher: for example, Iraq and Kuwait depend on resource exports for over 90% of their revenue, Saudi Arabia around 65%, and the UAE about 50%.
By extension, Iran’s weaker economy and more single-structure industry suggest its fiscal dependence on energy exports could be over 50%, comparable to Iraq and Kuwait, possibly reaching 90%.
Furthermore, Iran imports about 40% of its food. Energy exports are vital not only for Iran’s fiscal health but also for social stability. Hormuz is a strategic fortress, a fiscal resource, and a lifeline for the Iranian people.
For Middle Eastern oil giants, a sustained shutdown of Hormuz would mean fiscal strain and economic disorder.
Despite attempts over the past 20 years to diversify, these countries remain highly dependent on energy exports. A complete blockade would pose significant challenges to regional stability.
The impact extends beyond energy: international capital markets are influenced by Middle Eastern funds. Rising energy prices could trigger a food crisis, affecting the global economy and growth.
For global manufacturing, oil price spikes threaten cost increases and disrupt supply systems.
Particularly, the main oil transit route to Asia—China, Japan, South Korea, and India—would be severely affected. These countries are heavily reliant on Hormuz for energy security.
On the supply chain side, Asian economies contribute nearly 25% of global manufacturing exports. Energy inflation and freight costs would sharply increase production costs, risking global supply chain chaos and triggering a “second wave” of inflation.
A sustained Hormuz shutdown would push oil prices into a new regime—not just high prices but a fundamental threat to the global supply chain.
For the US, uncontrollable oil prices would cause liquidity shocks, undermining its core—technology.
The US relies heavily on technology: the dollar index, financial markets, investment, and production all depend on technological stability. A collapse would be a major challenge.
If Hormuz remains fully shut, the supply contraction would surpass previous estimates, pushing oil prices above $100 for a prolonged period, affecting US inflation and monetary policy, and disrupting technological capital expenditure.
Even the US would not want a prolonged Hormuz blockade causing runaway oil prices and inflation.
In summary, a sustained Hormuz shutdown would not only cause oil prices to spike but also trigger global disorder—disrupted supply-price systems, capital flight, weakened food security. Many countries, including Iran, would suffer, and Iran’s fiscal and social stability could be severely impacted. Therefore, a long-term complete shutdown of Hormuz is unlikely.
Since the US cannot TACO Iran nor achieve a quick victory, and a full blockade of Hormuz seems unlikely, the future trajectory of Hormuz may be a prolonged chaos.
Chaos here means Hormuz cannot fully restore shipping but also will not remain completely shut down forever.
Initially, in chaos, oil prices may spike sharply but not sustain indefinitely. The market will price in the supply uncertainty, raising the oil price center.
The duration of Hormuz’s chaotic state determines how long the oil price center remains elevated.
Hormuz has moved beyond a delicate fragile balance into greater uncertainty. Considering its importance to current global oil supply, we conclude that the US-Iran conflict signifies the fourth major oil supply transformation since WWII.
Labeling this as the fourth post-WWII supply transformation is justified because it involves supply contraction, rising price centers, and macroeconomic shifts—similar to previous episodes, but with less intensity.
Unlike the 1980s capacity expansion or the 2013-2014 shale revolution, the chaos in Hormuz resembles the 1970s oil wars: a systemic demand contraction and increased regional supply importance.
This transformation is both a supply reduction and a macro reordering, akin to the 1970s.
The reason for calling it the fourth post-WWII supply transformation is that it involves supply contraction, rising price centers, and macroeconomic shifts—similar to past episodes, but with less intensity.
The macro context is similar: global supply chain disruptions, energy system tearing, dollar system pressures, and geopolitical reordering.
Oil supply transformation is both a result and a catalyst of the reordering of the global macroeconomic and political order. Viewing the US-Iran conflict through this lens, labeling it as the fourth major post-WWII oil supply transformation is appropriate.
Although the final outcome of the US-Iran conflict remains uncertain, it is certain that the chaos in Hormuz will eventually end.
After chaos, the future of global oil prices depends on whether the US can secure enough dominance in the conflict.
If the US wins, its influence in the Middle East will strengthen, and a long-standing regional friction could enter a rare period of stability. Global oil supply would become more abundant, and US control over global oil could reach 65%, an unprecedented level. This would be comparable to the shale revolution.
If the US loses, influence in the Middle East would weaken, and uncertainty in regional supply could increase. Oil prices might rise further. Although many parties would resist sustained high prices, a prolonged high-price regime would have deep impacts on global supply chains, capital markets, and international politics.
Historical cases show that each major shift in oil price centers leads to supply chain restructuring, financial liquidity swings, energy industry revolutions, and global power reordering. We will explore five such cases in the next article.
Main Content
Markets understand well how Iran’s situation impacts global assets, mainly depending on the extent and duration of Hormuz being shut down. Predicting the US-Iran conflict’s trajectory is not just political speculation but provides a market perspective: what pattern will the oil price shocks follow?
Three key questions about Iran:
Question 1: Can the US truly TACO Iran? That is, will the US relinquish control over Persian Gulf oil?
Question 2: Can the Iran issue be resolved smoothly? Will Iran become the second Venezuela under US military pressure?
Question 3: If the US cannot TACO Iran nor achieve quick victory, will Hormuz fall into full chaos?
Is there a fourth possibility? If so, how would it change global oil prices? From a long-term supply-demand view, what does it mean?
These are the questions this article seeks to answer.
After the unpredictable tariffs of 2025, the market has developed a habitual expectation of Trump’s TACO strategy.
The rule-shaking initiated by Trump made TACO the best choice, as vividly demonstrated during the year-long trade war. Recently, the US Congress declared the IEEPA tariffs unconstitutional, leaving a deep impression of Trump’s TACO approach.
Initially, forward oil prices were not high, indicating the market did not see the US-Iran conflict as a sustained threat. Recently, Trump suggested the Middle East conflict might end soon, and oil prices have quickly retreated from high levels, easing liquidity panic, and the TACO scenario is repeating.
Iran’s importance to global oil supply and its strategic significance to the US make it unlikely that the US can easily achieve “TACO”.
The answer is clear when examining the share of global oil exports: Iran, specifically the Strait of Hormuz, holds strategic importance for the US that is unmatched.
Currently, about 40% of global oil supply comes from the Middle East, with Persian Gulf countries (UAE, Saudi Arabia, Iran, Iraq) accounting for 20%. Nearly 90% of their exports depend on transit through Hormuz. This means Iran controls roughly 50% of Middle Eastern oil supply and 20% of global oil demand via Hormuz.
Controlling Hormuz would give the US influence over nearly 65% of global oil supply, reaching an unprecedented level of control.
Losing control of Hormuz would imply a significant reduction in US influence in the Middle East, with the US’s share of global oil supply dropping below 30%.
On the financial side, the dollar’s status as the global currency is partly supported by its role as the main settlement currency for oil. From a financial system perspective, Hormuz’s significance to the US is not just about fossil energy discourse but also about the dollar’s credibility and the US’s global economic and financial dominance.
Once energy security and the dollar system are involved, the strategic importance of Hormuz to the US becomes clear. It’s unlikely the US can easily extricate itself from Iran’s situation.
Since the US cannot easily disengage from Iran’s Middle Eastern geopolitics, can it escalate military efforts to achieve a quick victory and turn Iran into the second Venezuela?
Trump previously suggested resolving issues within four weeks, attempting to replicate the Venezuela model. But this time, confronting Iran, it’s unlikely to be straightforward.
The ongoing US-Iran conflict is increasingly priced in the market as a deepening scenario.
Whether considering absolute oil prices or global capital markets—including US, European, and Japanese bonds—the trend indicates that a quick US victory is becoming less likely.
Iran differs vastly from Venezuela; their population sizes, geography, religious influences, and historical contexts are not comparable.
Iran’s population is over three times that of Venezuela, its land area nearly double, and its GDP is about four times larger. Its oil exports are roughly twice those of Venezuela. Considering Hormuz’s impact on the entire Middle Eastern oil landscape and global oil patterns, Iran’s position in the oil system is far beyond Venezuela’s.
Iran’s religious stance and persistent opposition to the US further complicate a swift US victory.
Beyond Iran’s own factors, Hormuz involves many national interests. Under multi-national competition, a quick US victory over Iran is unrealistic.
Russia, East Asia, and Europe are all geopolitically connected to Iran. The US must consider not only Iran’s resistance but also the broader great power competition.
For Russia, Iran’s proximity means Russia does not want to see the US gain full control over Iran. Additionally, if the US controls Hormuz, it would dominate global oil discourse, reducing Russia’s strategic influence in the oil market, which Russia would oppose.
For Asian countries, Japan, South Korea, and India rely heavily on oil and gas transported through Hormuz. Europe also has natural gas routes via Hormuz. These economies—especially China and Europe—are major global manufacturing hubs.
A quick US victory would mean Hormuz falls under US control, affecting global energy prices, dollar hegemony, manufacturing costs, and supply chain security. Under great power rivalry, the US-Iran situation will face greater uncertainty.
If the US cannot truly TACO Iran or achieve a quick victory, does that mean the conflict will spiral into chaos, with the Strait of Hormuz being fully and permanently shut down?
We believe the probability of this scenario is low, mainly due to the geopolitical complexity of Hormuz.
For Iran, a complete shutdown of Hormuz would threaten its fiscal stability and civilian livelihood.
Resource-exporting countries typically rely heavily on resource revenues—over 50% of their fiscal income. In the Middle East, this dependence is even higher: for example, Iraq and Kuwait depend on resource exports for over 90% of their revenue, Saudi Arabia around 65%, and the UAE about 50%.
By extension, Iran’s weaker economy and more single-structure industry suggest its fiscal dependence on energy exports could be over 50%, comparable to Iraq and Kuwait’s reliance, possibly reaching 90%.
Furthermore, Iran imports about 40% of its food. Energy exports are vital not only for Iran’s fiscal health but also for social stability. Hormuz is a strategic fortress, a fiscal resource, and a lifeline for the Iranian people.
For Middle Eastern oil giants, a sustained shutdown of Hormuz would mean fiscal strain and economic disorder.
Despite attempts over the past 20 years to diversify, these countries remain highly dependent on energy exports. A complete blockade would pose significant challenges to regional stability.
The impact extends beyond energy: international capital markets are influenced by Middle Eastern funds. Rising energy prices could trigger a food crisis, affecting the global economy and growth.
For global manufacturing, oil price spikes threaten cost increases and disrupt supply systems.
Particularly, the main oil transit route to Asia—China, Japan, South Korea, and India—would be severely affected. These countries are heavily reliant on Hormuz for energy security.
On the supply chain side, Asian economies contribute nearly 25% of global manufacturing exports. Energy inflation and freight costs would sharply increase production costs, risking global supply chain chaos and triggering a “second wave” of inflation.
A sustained Hormuz shutdown would push oil prices into a new regime—not just high prices but a fundamental threat to the global supply chain.
For the US, uncontrollable oil prices would cause liquidity shocks, undermining its core—technology.
The US relies heavily on technology: the dollar index, financial markets, investment, and production all depend on technological stability. A collapse would be a major challenge.
If Hormuz remains fully shut, the supply contraction would surpass previous estimates, pushing oil prices above $100 for a prolonged period, affecting US inflation and monetary policy, and disrupting technological capital expenditure.
Even the US would not want a prolonged Hormuz blockade causing runaway oil prices and inflation.
In summary, a sustained Hormuz shutdown would not only cause oil prices to spike but also trigger global disorder—disrupted supply-price systems, capital flight, weakened food security. Many countries, including Iran, would suffer, and Iran’s fiscal and social stability could be severely impacted. Therefore, a long-term complete shutdown of Hormuz is unlikely.
Since the US cannot TACO Iran nor achieve a quick victory, and a full blockade of Hormuz seems unlikely, the future trajectory of Hormuz may be a prolonged chaos.
Chaos here means Hormuz cannot fully restore shipping but also will not remain completely shut down forever.
Initially, in chaos, oil prices may spike sharply but not sustain indefinitely. The market will price in the supply uncertainty, raising the oil price center.
The duration of Hormuz’s chaotic state determines how long the oil price center remains elevated.
Hormuz has moved beyond a delicate fragile balance into greater uncertainty. Considering its importance to current global oil supply, we conclude that the US-Iran conflict signifies the fourth major oil supply transformation since WWII.
Labeling this as the fourth post-WWII supply transformation is justified because it involves supply contraction, rising price centers, and macroeconomic shifts—similar to previous episodes, but with less intensity.
Unlike the 1980s capacity expansion or the 2013-2014 shale revolution, the chaos in Hormuz resembles the 1970s oil wars: a systemic demand contraction and increased regional supply importance.
This transformation is both a supply reduction and a macro reordering, akin to the 1970s.
The reason for calling it the fourth post-WWII supply transformation is that it involves supply contraction, rising price centers, and macroeconomic shifts—similar to past episodes, but with less intensity.
The macro context is similar: global supply chain disruptions, energy system tearing, dollar system pressures, and geopolitical reordering.
Oil supply transformation is both a result and a catalyst of the reordering of the global macroeconomic and political order. Viewing the US-Iran conflict through this lens, labeling it as the fourth major post-WWII oil supply transformation is appropriate.
Although the final outcome of the US-Iran conflict remains uncertain, it is certain that the chaos in Hormuz will eventually end.
After chaos, the future of global oil prices depends on whether the US can secure enough dominance in the conflict.
If the US wins, its influence in the Middle East will strengthen, and a long-standing regional friction could enter a rare period of stability. Global oil supply would become more abundant, and US control over global oil could reach 65%, an unprecedented level. This would be comparable to the shale revolution.
If the US loses, influence in the Middle East would weaken, and uncertainty in regional supply could increase. Oil prices might rise further. Although many parties would resist sustained high prices, a prolonged high-price regime would have deep impacts on global supply chains, capital markets, and international politics.
Historical cases show that each major shift in oil price centers leads to supply chain restructuring, financial liquidity swings, energy industry revolutions, and global power reordering. We will explore five such cases in the next article.
Main Content
Markets understand well how Iran’s situation impacts global assets, mainly depending on the extent and duration of Hormuz being shut down. Predicting the US-Iran conflict’s trajectory is not just political speculation but provides a market perspective: what pattern will the oil price shocks follow?
Three key questions about Iran:
Question 1: Can the US truly TACO Iran? That is, will the US relinquish control over Persian Gulf oil?
Question 2: Can the Iran issue be resolved smoothly? Will Iran become the second Venezuela under US military pressure?
Question 3: If the US cannot TACO Iran nor achieve quick victory, will Hormuz fall into full chaos?
Is there a fourth possibility? If so, how would it change global oil prices? From a long-term supply-demand view, what does it mean?
These are the questions this article seeks to answer.
[End of translation]