Return of TACO Trade: Why Trump Softened on Iran as Oil Prices Soared

Donald Trump’s stance on the conflict with Iran appeared to soften suddenly on Monday after surging oil prices triggered a sharp sell-off across several major global stock markets.

In his latest statement, the US president suggested the conflict could end “very soon,” a remark that pushed benchmark crude prices down by more than 10%. The decline in oil prices helped markets partially recover on Tuesday.

However, Trump’s turnaround after earlier aggressive rhetoric has revived a popular market phrase, “Trump Always Chickens Out” (TACO).

What is TACO Trade?

The “TACO trade” is a Wall Street slang that describes a pattern investors have observed during the presidency of Donald Trump. The phrase refers to the tendency of markets to sell off sharply after major tariff threats, only to rebound when those threats are softened, delayed, or partially reversed.

Traders who “buy the dip” after such announcements and then sell once the administration steps back from the policy often refer to this strategy as a TACO trade.

The term was coined by Robert Armstrong in the Unhedged commentary published by the Financial Times. The phrase ‘Trump Always Chickens Out,’ reflects the perception that Trump’s strong policy threats are usually followed by softer implementation.

The term gained prominence after several episodes in which tough trade rhetoric was later moderated.

One of the earliest triggers for the term was the “Liberation Day” tariff announcement, where sweeping tariffs on imports were initially introduced at very high levels. Within about a week, the administration reduced many of those tariffs to around a 10% baseline, easing market concerns. Investors who had bought stocks during the market dip benefited when markets rebounded after the retreat.

What Led to the “Chicken Out”

The ongoing conflict involving Iran, Israel and the US has got global markets under significant pressure. The clash has triggered concerns over energy supply disruptions, raising fears that higher oil prices could drive global inflation and potentially force central banks to maintain elevated interest rates.

At the heart of the concern is the threat of disruption of the Strait of Hormuz, one of the world’s most critical oil arteries through which roughly one-fifth of global petroleum supplies move.

Oil prices spiked significantly during the first week of the US-Israel conflict with Iran after Tehran effectively closed the strait. By Monday, key oil benchmarks had recorded their largest weekly gains in six years, with prices touching around $120 per barrel and crossing the $100 mark for the first time since the Russian invasion of Ukraine.

To soothe the market rattled by soaring oil prices, Trump had to reportedly soften his stance on the conflict.

Trump’s Change in Stance

Trump launched the conflict with Iran under the banner of Operation Epic Fury, initially adopting a maximalist tone that demanded Tehran’s “unconditional surrender” and threatened overwhelming military force.

In a video posted on Truth Social announcing that the US had begun “major combat operations” in Iran, Trump issued a direct warning to Iranian security forces. “To the members of the Islamic Revolutionary Guard Corps, the armed forces and all of the police, I say tonight that you must lay down your weapons and have complete immunity. Or in the alternative, face certain death,” he said. “So, lay down your arms. You will be treated fairly with total immunity, or you will face certain death.”

However, after tensions around the Strait of Hormuz escalated and global markets came under intense pressure, Trump struck a more restrained tone in his latest comments on the conflict. He said the military campaign had largely achieved its objectives and described it as a limited intervention.

“We took a little excursion because we felt we had to do that to get rid of some evil,” Trump said. “Then, I think you’ll see it’s going to be a short-term excursion.”

What began as strong threats toward Iran eventually evolved into a softer stance, a shift that first rattled markets and then helped them rebound. The sequence, initial aggressive rhetoric triggering a market sell-off, followed by a moderated position that stabilises markets, fits the pattern of a “TACO trade.”