Oil War Bet: Hedge Funds Ditch "Taco," Flood Corn & Soy as Strait Stays Blocked

Hedge funds are abandoning last year’s bet that the US would back down from trade threats and are now piling into a new trade: betting that the Strait of Hormuz will remain blocked indefinitely, keeping crude prices high and triggering a biofuels boom [146980]. Investors are calling the new bet “Nacho” – short for “Not a chance Hormuz opens” – a sharp reversal from 2024’s dominant “Taco” trade, which assumed former President Trump would always chicken out of trade conflicts [146980].

With a fragile US-Iran ceasefire barely holding and the Strait still blockaded, a potential disruption in Iranian oil supplies is driving up crude costs [146933]. Traders believe this will make alternative fuels more competitive [146933]. In response, hedge funds are flooding into corn and soybean futures, betting that demand for ethanol and biodiesel will spike if oil prices soar [146933]. The strategy is simple: buy agricultural futures now, and if oil prices jump, demand for biofuels will follow, pushing crop prices higher [146933].

This move highlights a growing link between geopolitics and food markets, as investors closely watch Iran for any escalation that could trigger a rapid rally in grain prices [146933]. Stock markets, meanwhile, are rising as investors bet companies will profit from the conflict, while bond markets are selling off on fears of long-term economic damage, inflation, and recession [143201].