Oil prices surge by 10%! NACHO trading resumes, market "priced in the end of the conflict too early"

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The Middle East situation heated up again over the weekend, coupled with Trump announcing a renewed blockade of Iran's shipping route through the Strait of Hormuz. International oil prices recorded the biggest single-day gain since 2020 on Monday, erasing the previous month's downward trend in one swoop. The market is restarting the NACHO trade: the possibility of the Strait of Hormuz returning to pre-war normalcy is almost zero.

According to CCTV News, on July 13 local time, US President Trump stated to the media at the White House that he still believes the United States and Iran could reach an agreement: "Iran wants to reach a deal and has re-engaged with the US." At the same time, Trump said the US military will continue to launch fierce attacks on Iran, severely weakening Iran's ability to influence passage through the Strait of Hormuz, and is restoring a "blockade targeting Iran only." Any vessels conducting business with Iran will not be allowed to pass through, while other countries and ships can transit normally.

Brent crude oil futures jumped 9.6% in a single day, closing at $83.20 per barrel; US WTI crude futures rose 9.4%, closing at $78.14 per barrel, marking the fourth largest single-day gain since 2026.

Commercial vessel traffic through the Strait of Hormuz has plummeted. According to Bloomberg data, only 3 commercial ships transited in the latest 24 hours, compared to 57 ships at the rebound peak on June 24.

This round of oil price surges simultaneously triggered a reassessment of inflation and interest rate trajectories in the market, and has reactivated Wall Street’s previously popular "NACHO trade"—a strategy betting the Strait of Hormuz will not reopen. Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, said, "The market is overly optimistic about partial reopening and has too quickly priced it as the end of the crisis."

NACHO Trade Reignited: Market Bets the Strait Won’t Return to Normal

NACHO stands for "Not a Chance Hormuz Opens." The core logic of this strategy is that the waterway, previously carrying about 20% of the world's oil shipments, will remain nearly closed for a considerable time, with only small volumes passing through secret routes, until the economic cost of the blockade—high oil prices and accelerated inflation—becomes intolerable.

The weekend’s military conflict reignited this trading logic. Rachel Ziemba, adjunct senior fellow at Washington think tank Center for a New American Security, stated, "The likelihood of the region or the Strait of Hormuz returning to old normal is practically zero. If anything, this only further strengthens the motivation to invest in alternative routes as soon as possible."

Clionadh Raleigh, founder and CEO of conflict monitoring agency Acled, noted, military actions this week are part of the longer cycle of escalation and retaliation. "Unless there is some decisive blow—which the US has failed to deliver so far—I can hardly see the possibility of a negotiated solution. Even if attacks subside temporarily, the fundamental disputes around the Strait will persist, and the risk of future flare-ups remains high."

Goldman Sachs: Core Dispute Shifts from 'Open or Closed' to 'Who Decides'

The head of Goldman Sachs’ One-Delta Trading Desk pointed out that the current core debate in the market has fundamentally shifted—not whether the Strait of Hormuz is open, but whose permission is required for transit. The US insists the shipping route remains open, Iran asserts vessels must use routes under Iran’s control, and commercial operators are cautious about testing either claim. From a policy perspective, constraints are more likely to come from Washington than Tehran.

Goldman Sachs believes that as US midterm elections approach, policymakers have a strong incentive to prevent oil prices from continuing to break triple digits. Therefore, after weekend escalations, weekdays often involve diplomatic efforts to stabilize the market. Its base-case scenario assumes Iran exercises de facto control over transit, the US accepts this operational reality, allowing traffic to gradually recover, corresponding to Brent crude prices within $75–$85 per barrel.

The upside risk scenario points to above $100 per barrel: if attacks spread to regional energy infrastructure (such as offshore platforms hit over the weekend) or if both Hormuz and Bab el-Mandeb straits are blocked, oil prices will face greater upward pressure. Goldman expects the market to show an alternating rhythm of "weekend escalation, weekday consolidation" before that happens.

Notably, refined oil markets are also under pressure. Goldman notes diesel and gasoline supplies are structurally tight, and this dynamic may have an even deeper impact on interest rates than Brent spot prices.

Strategic Reserves Running Low as Speculative Funds Retreat

With rising oil prices, the market faces an added vulnerability: US strategic petroleum reserves have fallen to their lowest levels since 1983. The Trump administration previously continuously released reserve crude to suppress fuel prices, greatly shrinking this emergency buffer. Investors including Henry Hoffman warn that, given persistent depletion of global inventories, risks of further sharp oil price increases should not be ignored.

However, despite analysts and traders gaining confidence in oil’s renewed upward trend, speculative funds are retreating. Latest futures position data shows, speculative long positions by hedge funds and others have declined, thus narrowing market liquidity. Dutch investment bank ING wrote to clients, "The uncertainty about the recent escalating tensions—whether they are transient or sustained—seems to make a large number of market participants choose to wait and see."

Alternative Pipelines: A Long-term Solution, Hard to Address Urgent Needs in the Short Term

Faced with ongoing uncertainty around the Strait, Saudi Arabia, Iraq, and the UAE regard the Strait of Hormuz as a structural risk to be bypassed and are actively planning new pipelines and port export routes. Saudi Arabia is expanding pipeline shipments of oil towards the Red Sea and increasing export capacity; the UAE is investing in expanding pipelines and port facilities outside the strait; Iraq is attempting to restart land export routes via Turkey, Syria, and Jordan.

According to Goldman Sachs calculations, if the above new and expanded pipeline projects are all completed, by the end of 2027, over 45% of pre-war Gulf oil exports can bypass the Strait of Hormuz; if progress accelerates, this figure could reach 75% by the end of 2028. Goldman currently has seven pipelines under construction, with the fastest national pipeline expected to be completed within 2.5 years. Goldman also points out that increased bypass capacity presents downside risks to its long-term oil price forecast of $76 per barrel.

However, pipeline construction is not without cost. Rachel Ziemba warns, "Building new pipelines is much easier than fully protecting them against attacks." These alternative routes intended to avoid the Strait’s risk may themselves become targets.

Meanwhile, US shale producers, and oil companies in Kazakhstan, Brazil, and Venezuela are accelerating output growth. Asian buyers are also sourcing more crude from Latin America, West Africa, and the US to rebuild strategic inventories and reduce reliance on the Strait of Hormuz. US crude and oil product exports have set record highs this spring.

Risk Warning and DisclaimerThe market is risky and investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users’ particular investment goals, financial situations, or needs. Users should consider whether the opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Investment decisions are at your own risk. ```