To The Moon

Geopolitical tensions in the Middle East escalated over the weekend, compounded by an announcement from former President Trump regarding renewed restrictions on Iranian shipping through the Strait of Hormuz. This triggered the largest single-day gain for international oil prices since 2020 on Monday, erasing the losses from the previous month's decline. The market is reactivating the NACHO trade, with the likelihood of the strait returning to its pre-conflict normalcy now seen as virtually zero.

According to reports, on July 13th, former President Trump stated at the White House that he still believes a deal with Iran is possible, claiming "Iran wants a deal and has re-engaged with the U.S." He simultaneously announced that U.S. military strikes on Iran would continue to significantly degrade its ability to influence traffic through the Strait of Hormuz. A renewed "blockade targeting only Iran" was being reinstated, meaning any vessel doing business with Iran would be barred from passage, while ships from other nations could proceed normally.

Brent crude futures jumped 9.6% to settle at $83.20 per barrel. U.S. WTI crude futures rose 9.4% to close at $78.14 per barrel, marking the fourth-largest single-day gain since 2026.

Commercial vessel traffic through the Strait of Hormuz has plummeted. Data shows only 3 commercial vessels transited in the latest 24-hour period, a stark contrast to the rebound peak of 57 vessels on June 24th.

The oil price surge has prompted a market reassessment of inflation and interest rate trajectories, reviving the previously popular "NACHO trade" on Wall Street—a strategy betting the Strait of Hormuz will not reopen. Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, noted, "The market was overly optimistic about a partial reopening, prematurely pricing it as the crisis ending."

Reactivated NACHO Trade: Betting Against a Return to Normal

NACHO stands for "Not a Chance Hormuz Opens." The core logic of this trading strategy is that this chokepoint, which previously handled roughly 20% of global oil shipments, will remain effectively closed for a considerable time, with only minimal cargo moving via covert routes, until the economic costs of the blockade—high oil prices and accelerated inflation—become unbearable.

The weekend's military clashes have reignited this trade rationale. Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, stated, "The chances of that region and the Strait of Hormuz returning to the old normal are effectively zero. If anything, this only reinforces the incentive to invest in alternative routes sooner."

Clionadh Raleigh, founder and CEO of conflict monitor Acled, pointed out that this week's military actions are part of a longer cycle of escalation and retaliation. "Unless there is some kind of decisive strike—which the U.S. has so far failed to deliver—I find it hard to see a negotiated solution. Even if attacks subside temporarily, the fundamental dispute over the strait remains, with a high probability of future flare-ups."

Goldman Sachs: Core Debate Shifts from 'Open or Shut' to 'Who Controls It'

A lead from Goldman Sachs's One-Delta trading desk indicated the market's core debate has fundamentally shifted—it is no longer about whether the Strait of Hormuz is open, but rather whose permission is required for vessel transit. The U.S. insists the shipping lane remains open, while Iran asserts vessels must use routes it controls. Commercial operators are wary of testing either claim. From a policy perspective, constraints are more likely to come from Washington than Tehran.

Goldman Sachs analysts believe that, with U.S. midterm elections approaching, policymakers have a strong incentive to prevent oil prices from sustainably breaking above $100. Therefore, following weekend escalations, diplomatic efforts to stabilize markets often follow during the workweek. Their base case scenario involves Iran exercising de facto control over transit, with the U.S. tacitly accepting this operational reality, allowing traffic to gradually resume, corresponding to a Brent crude price range of $75 to $85 per barrel.

The upside risk scenario points to prices above $100 per barrel: if attacks spread to regional energy infrastructure (like the offshore platforms targeted over the weekend), or if both the Strait of Hormuz and the Bab el-Mandeb strait are simultaneously obstructed, oil would face greater upward pressure. Goldman Sachs expects the market to exhibit an alternating rhythm of "weekend escalation, workweek consolidation" until such an event.

Notably, refined product markets are also under pressure. The bank highlighted that diesel and gasoline supplies are structurally tight, a dynamic that could have an even more profound impact on interest rates than the spot price of Brent crude.

Strategic Reserves Dwindle as Speculative Capital Retreats

Amid this oil price rally, the market faces an additional vulnerability: U.S. Strategic Petroleum Reserve levels have fallen to their lowest since 1983. The previous administration's sustained releases of reserve crude to suppress fuel prices have significantly eroded this emergency buffer. Investors like Henry Hoffman warn that the risk of a further sharp oil price increase cannot be ignored, given the ongoing drawdown of global inventories.

However, despite analysts and traders growing more confident in a renewed upward trend for oil, speculative capital is retreating. The latest futures positioning data shows speculative net-long positions held by hedge funds have declined, narrowing market liquidity. A note to clients from Dutch bank ING stated, "The uncertainty over whether the recent re-intensification of tensions is transient or more sustained seems to be keeping a large part of the market on the sidelines."

Alternative Pipelines: A Long-Term Fix, Not an Immediate Solution

Facing persistent uncertainty around the strait, Saudi Arabia, Iraq, and the UAE have come to view the Strait of Hormuz as a long-term structural risk that must be circumvented, initiating plans for new pipeline and port export routes. Saudi Arabia is moving more crude via pipeline toward the Red Sea and expanding export capacity there, the UAE is investing in expanding pipeline and port facilities outside the strait, and Iraq is attempting to restart overland export routes through Turkey, Syria, and Jordan.

According to Goldman Sachs calculations, if all these new and expanded pipeline projects are completed, over 45% of pre-conflict Gulf oil exports could bypass the Strait of Hormuz by the end of 2027. If project timelines accelerate, this figure could reach 75% by the end of 2028. The bank notes seven pipelines are currently under construction, with the fastest single-country project potentially completed within 2.5 years. Goldman Sachs also points out that increased bypass capacity poses a downside risk to its long-term oil price forecast of $76 per barrel.

However, pipeline construction is not without cost. Rachel Ziemba cautioned, "It is easier to build a new pipeline than to comprehensively protect it from attack." These alternative routes, designed to circumvent the strait's risks, could themselves become targets.

Meanwhile, U.S. shale producers, along with oil companies in Kazakhstan, Brazil, and Venezuela, are accelerating production increases. Asian buyers are also sourcing more crude from Latin America, West Africa, and the U.S. to rebuild strategic inventories, reducing their reliance on the Strait of Hormuz. U.S. exports of crude oil and petroleum products reached a record high this spring.