The markets are catching on to Trump's tampering: economist

There is a “dangerously circular” dynamic at play that is causing President Donald Trump’s Iran War to last far longer than anyone — including the president — has suggested, and it involves oil.

The Atlantic‘s Rogé Karma argues that when the price of oil gets too high, Trump declares the war is near an end, and the price then drops, reducing the pressure on Trump to end the war sooner.

Karma calls it “the TACO equilibrium.”

Pointing to an “underlying belief,” Karma writes that “Trump will inevitably back down once the economic pain gets high enough. This is the so-called TACO theory of Trump’s decision making, as in ‘Trump Always Chickens Out.'”

“The market has correctly realized there’s an audience of one who will determine the outcome of this, and that’s Trump,” Arnab Datta, a managing director at the think tank Employ America, told Karma. “Among traders, the assumption is that the pain can only get so high before Trump retreats.”

“That logic turns out to be dangerously circular,” Karma posits. “Prices are low because investors expect Trump to end the war before prices get too high; but because prices are low, Trump faces less pressure to end the war.”

“Prices rise, Trump talks about a deal, prices fall, and then Trump suddenly feels like he doesn’t actually need to make the deal,” oil-markets analyst Rory Johnston told Karma.

Trump “seems to have figured out that he can calm the oil markets simply by gesturing at the prospect of a peace deal every so often,” Karma explains. “Of course, a peace deal or a new cease-fire could still be announced at any moment. But the dynamic between Trump and the markets—call it the TACO equilibrium—is what has kept the war going longer than almost anyone expected.”

here is precedent for this TACO theory: Trump’s 2025 “Liberation Day” tariffs, when the president initially backed down just hours after they started to go into effect.

“A mere 13 hours into his new trade policy, Trump backed off and announced a 90-day pause on the tariffs, citing the fact that the markets had gotten ‘yippy,'” says Karma. “Interest rates fell and the stock market experienced its largest one-day rally of the year. Investors who had bet that Trump would blink made a lot of money.”

This cycle “can’t last forever. Markets are starting to catch on. Johnston pointed out that the impact of Trump’s peace announcements on oil prices has been diminishing over time, as traders begin to recognize the pattern.”

But for now, Karma concludes, “the TACO equilibrium continues to hold.”

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