Oil Markets Bet on Trump's 'Put' Option, and Won

The oil market has been betting on Trump's 'put' option since the Iran war began. The theory is that Trump would avoid allowing economic instability, as it could harm his re-election chances.

Brent crude prices surged from $70 to a peak of $118 in late March, but only slightly higher than after Russia invaded Ukraine in 2022. This suggests that markets were not pricing in the risk of a full-blown economic crisis, despite the unprecedented closure of the Strait of Hormuz.

The 'Trump put' refers to the idea that Trump's willingness to compromise and avoid market pain has limits. During his presidency, markets have repeatedly discounted extreme outcomes implied by his rhetoric and initial policy moves.