Oil prices surge; NACHO trading restarts. The market priced the conflict ending too early.

Author: Zhao Ying, Wall Street Insights

Over the weekend, the situation in the Middle East flared up again. Combined with Trump’s announcement that the Strait of Hormuz shipping route for Iranian vessels will be re-blocked, international oil prices logged the biggest single-day jump since 2020 on Monday—completely erasing the losses from the previous month. The market is restarting the NACHO trade: the probability that the Strait of Hormuz will return to pre-war normalcy is close to zero.

According to CCTV News, local time July 13, U.S. President Donald Trump told the media at the White House that he still believes the U.S. and Iran could reach a deal. “Iran wants to reach an agreement, and has re-engaged with the U.S. side.” At the same time, Trump said U.S. forces will continue to launch fierce strikes against Iran, greatly weakening Iran’s ability to influence passage through the Strait of Hormuz, while also restoring an “Iran-only blockade.” Any ship conducting business with Iran will be unable to pass, while other countries and ships can still transit normally.

Brent crude futures surged 9.6% in a single day, closing at $83.20 per barrel; U.S. WTI crude futures rose 9.4%, closing at $78.14 per barrel, recording the fourth-largest single-day gain since 2026.

The volume of commercial vessels transiting the Strait of Hormuz has shrunk sharply. According to Bloomberg data, in the latest 24 hours only 3 commercial ships crossed, compared with 57 ships at the rebound peak on June 24.

This spike in oil prices has also prompted the market to re-evaluate the inflation and interest-rate path, and has revived Wall Street’s previously popular “NACHO trade”—a strategy betting that the Strait of Hormuz will not reopen. Henry Hoffman, co-portfolio manager at Catalyst Energy Infrastructure Fund, said, “The market is too optimistic about partial reopening, pricing it as if the crisis has ended prematurely.”

NACHO trade restarted: the market bets the strait will not return to normal

NACHO is an acronym for “Not a Chance Hormuz Opens” (no chance the Strait of Hormuz reopens). The core logic of this trading strategy is: this shipping route—which previously carried about 20% of global oil transport volume—will remain nearly shut for a considerable period, with only small amounts of cargo passing through secret routes, until the economic cost of the blockade—high oil prices and accelerating inflation—becomes unbearable.

The military conflict re-ignited this trading logic over the weekend. Rachel Ziemba, a part-time senior research fellow at the New American Security Center think tank, said, “The probability that the region and the Strait of Hormuz return to the old normal is actually zero. If there is any change, it would only further reinforce the momentum to invest in alternative routes as soon as possible.”

Clionadh Raleigh, founder and CEO of conflict monitoring organization ACLED, pointed out that this week’s military actions are part of a longer-cycle escalation and retaliation loop. “Unless some kind of decisive strike occurs—which the U.S. has not been able to do so far—it’s hard for me to see a negotiation-led resolution. Even if attacks pause temporarily, the fundamental dispute around the strait will remain, and the likelihood of it flaring up again in the future is very high.”

Goldman: the core dispute has shifted from “open or closed” to “who gets to decide”

A spokesperson for Goldman’s One-Delta trading desk said the market’s core debate has undergone a fundamental shift: it is no longer whether the Strait of Hormuz is open, but rather who’s permission is required for vessel transit. The U.S. insists the shipping corridor remains open, while Iran argues that ships must use routes controlled by Iran. Commercial operators are unwilling to test either claim lightly. From a policy perspective, the constraints are more likely to come from Washington than from Tehran.

Goldman believes that with U.S. midterm elections approaching, policymakers have strong incentives to prevent oil prices from sustaining a break above $100. Therefore, after the escalation over the weekend, weekdays often follow diplomatic efforts to stabilize the market. Its base-case scenario is: Iran exercises de facto control over transit, the U.S. implicitly accepts that this is the operational reality, allowing traffic to gradually recover—corresponding to a Brent crude price range of $75 to $85 per barrel.

The upside-risk scenario points to $100 per barrel or higher: if attacks spread to regional energy infrastructure (such as the offshore platform attacked over the weekend) or if both the Strait of Hormuz and the Strait of Mandeb are blocked at the same time, oil prices will face greater upward pressure. Goldman expects that before that happens, the market will show an alternating rhythm of “weekend escalation, weekday consolidation.”

Notably, the refined products market is also under pressure. Goldman said diesel and gasoline supply are structurally tight, and this dynamic could affect interest rates even more profoundly than Brent spot prices.

Strategic reserves running low, but speculative capital is pulling back

Against the backdrop of this oil-price rally, the market faces an additional vulnerability: U.S. strategic petroleum reserves have fallen to the lowest level since 1983. Previously, the Trump administration repeatedly released reserve crude to suppress fuel prices, causing this emergency buffer to shrink dramatically. Investors including Henry Hoffman warned that, given the ongoing drawdown of global inventories, the risk of further sharp rises in oil prices should not be ignored.

However, despite analysts and traders gaining confidence in the upward trend being restarted, speculative capital is retreating. The latest futures positioning data shows that speculative long positions such as those held by hedge funds have declined, narrowing market liquidity as a result. ING, a Dutch investment bank, wrote to clients in a report: “The uncertainty about whether heightened tensions are temporary or persistent—seems to lead many market participants to wait on the sidelines.”

Alternative pipelines: a long-term solution, but no quick fix

In the face of continued uncertainty around the strait, Saudi Arabia, Iraq, and the UAE have already treated the Strait of Hormuz as a must-avoid long-term structural risk, and are planning new pipelines and port export corridors. Saudi Arabia is pushing more crude toward the Red Sea via pipelines and expanding its export capacity; the UAE is investing in expanding pipeline and port facilities outside the strait; and Iraq is trying to restart land-based export routes via Turkey, Syria, and Jordan.

According to Goldman estimates, if all the above new-build and expansion pipeline projects are completed, by the end of 2027 more than 45% of pre-war Gulf oil export volumes could bypass the Strait of Hormuz; if project progress accelerates, the share could reach 75% by the end of 2028. Goldman currently has 7 pipelines under construction, and expects that a single-country pipeline could be completed in as little as 2.5 years. Goldman also noted that improved bypass capacity poses a downside risk to its long-term oil price forecast of $76 per barrel.

That said, pipeline construction is not without costs. Rachel Ziemba reminded, “Building new pipelines is much easier than fully protecting them from attack.” These alternative routes designed to avoid strait-related risks could themselves become targets for attacks.

Meanwhile, U.S. shale oil producers, oil companies in Kazakhstan, Brazil, and Venezuela are accelerating production increases. Asian buyers are also purchasing more crude from Latin America, West Africa, and the U.S. to rebuild strategic inventories and reduce reliance on the Strait of Hormuz. U.S. crude oil and petroleum products exports this spring have already hit historical records.