The intricate interplay between geopolitical maneuvering and financial markets was acutely demonstrated recently as global tensions prompted a counterintuitive response across commodity sectors. While military actions typically signal heightened risk, the market’s reaction to recent developments, particularly in the Middle East, has challenged conventional assumptions about political strategy and asset pricing. This dynamic has brought into sharp focus the concept known as “Trump Always Chickens Out” (TACO), re-evaluating its applicability in foreign policy, while simultaneously highlighting the complex technical undercurrents shaping the oil market and broader commodity prices.
The “TACO” Paradigm Under Scrutiny
The “Trump Always Chickens Out” (TACO) concept, as formulated, posits a two-fold pattern in President Trump’s approach to policy. First, it describes a consistent behavioral trend: the issuance of a significant policy promise or threat, which is subsequently diluted before substantive negotiations with a counterparty commence. Second, it encompasses a psychological claim about President Trump himself, suggesting that under pressure, his commitment to many of his stated policies wanes. His primary objective is to maintain a perception of strength and success, leading him to de-escalate or pivot if a policy begins to undermine this image. This framework suggests a president less driven by deep ideological or personal policy commitments than by public perception.
While the focus on self-image is common among politicians, the distinguishing factor for President Trump has been the initial volume of his rhetoric, necessitating a significant discount on its literal interpretation. For analytical purposes, the TACO concept was primarily intended to analyze economic policies, notably tariffs and immigration enforcement, rather than foreign policy or military engagements.
Recent US military actions, specifically the bombings of Iranian nuclear facilities, have presented a significant test for the TACO framework. A critical question arises: did President Trump perceive these actions as a substantial risk to his popularity? Alternatively, did he assess that, given Iran’s weakened state and prevailing anti-Iran sentiment in the US, these strikes posed minimal political blowback and could potentially bolster his standing? Without insight into his internal assessment of risk, it is challenging to unequivocally declare President Trump a bold risk-taker based solely on these events. Furthermore, even assuming a demonstrated geopolitical risk appetite, it remains uncertain whether this translates to domestic economic policy. Analysts suggest that the President’s risk tolerance may be domain-specific, implying that the TACO dynamic could still hold true for areas such as tariffs.
Commodity Market Dynamics Beyond Oil
In parallel to these geopolitical considerations, commodity markets displayed noteworthy volatility. Despite the immediate escalation signaled by Iran’s launch of missiles towards a US military base, oil prices, which had been restrained, plummeted by 7 percent. This counterintuitive movement was interpreted by traders and analysts as a signal of de-escalation, given the limited and telegraphed nature of Iran’s strike, which targeted military assets rather than the Strait of Hormuz or civilian infrastructure. Iran’s leadership has refrained from public actions to close the Strait, a move that would detrimentally impact its own oil exports during a precarious economic period and alienate its remaining international allies by triggering higher oil prices and inflation.
Oil prices have subsequently returned to levels observed prior to the recent US and Israeli engagements. This market movement, however, may not solely reflect fundamental prescience or optimism regarding future geopolitical developments. According to Ilia Bouchouev of Pentathlon Investments, the price decline is partly attributable to technical market dynamics. The global oil market, trading at an estimated 6 billion barrels daily against a consumption of 100 million barrels per day, is significantly influenced by the positions of money managers and hedge funds. Liquidity gaps can emerge where fundamental participants are insufficient to absorb the opposing side of these large trades. Additionally, oil producers often hedge their price exposure, employing strategies like buying put options and selling call options. As prices approach their strike levels, producers may sell futures, a practice that can exacerbate market movements, as potentially observed in the recent downturn.
While the direct impact on oil prices garners significant attention, secondary commodity markets, particularly fertilizers, warrant closer examination. Data from Kpler, a trade data company, indicates that 33 percent of the world’s fertilizers transit through the Strait of Hormuz. A potential closure or prolonged disruption due to escalating hostilities could lead to global food price increases beyond the typical agricultural cost implications of higher energy prices. Indeed, some agricultural commodity prices have exhibited correlation with oil price movements since the onset of Israel’s military actions.
However, the broader agricultural commodity market appears largely insulated from the conflict, adhering to normal seasonal patterns for items like soybeans. US and global producers often secure their fertilizer prices in advance of the growing season, mitigating the immediate impact of rising fertilizer costs on crop prices. Corn prices, for example, have declined over the same period, driven by independent supply dynamics. A notable exception is soybean oil, which experienced a significant rally, surpassing even crude oil’s gains. This surge is partially attributed to its use as a biodiesel, linking it to energy market trends, but also to unrelated factors such as new regulatory developments in the United States.
The complexity of these market responses underscores that geopolitical events, while impactful, are often one of several forces at play, with technical factors, supply-demand fundamentals, and specific market regulations contributing to a multifaceted price discovery process across commodities.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.