LARRY KUDLOW: Stop the hand-wringing, let Trump make a great deal for America

The article argues that Iran’s military and nuclear capabilities have already been decimated, creating room for a Trump-led deal that could reopen the Strait of Hormuz and help lower oil prices. It says any future agreement would require verified dismantlement of Iran’s nuclear program, with any unfrozen funds held in escrow and spent on food and medicine. The piece is strongly supportive of Trump’s diplomacy and frames the outcome as beneficial for global energy and inflation pressures.

Analysis

The market is likely underpricing the optionality embedded in a credible de-escalation path: even a partial reopening of Hormuz can compress the geopolitical risk premium faster than it restores physical supply, which matters because inventories and forward curves are still set up for a disruption regime. The first-order winner is not just crude-linked assets but any duration-sensitive asset class that has been penalized by higher energy volatility — airlines, chemicals, transport, and select EM importers should re-rate if shipping insurance and freight rates normalize over 1-3 months.

The second-order loser is the most levered part of the inflation complex: if energy breaks lower, breakevens and rate vol should come in, which reduces support for the “higher for longer” macro trade. That creates an asymmetry in Treasury and gold exposures: both have benefited from conflict hedging, but their risk premium is vulnerable if the story shifts from military escalation to managed containment. The real tell will be whether the market starts discounting a Treasury-led escrow mechanism; if so, sanctions leakage and compliance enforcement become the binding variable, not headline diplomacy.

The bigger contrarian point is that a successful deal may be more bearish for oil than consensus expects even if it is only partially implemented, because traders tend to price supply risk quickly but fade diplomatic durability slowly. If the agreement holds for just a few weeks and reins in tanker risk, energy equities may underperform the commodity as margin compression and lower realized volatility reduce the scarcity premium. Conversely, if talks fail, the move reverses violently and the market will reprice a renewed blockade and asymmetric retaliation risk over days, not months.

Key Decisions for Investors

• Short near-dated Brent volatility via puts on USO or BNO into any rally; target 4-8 week horizon, with risk/reward favoring downside if diplomatic headlines continue to de-risk shipping lanes.
• Go long XAR or ITA vs short XLE on a 1-3 month basis; if Hormuz risk premium compresses, defense/infrastructure spending is less sensitive than energy margins, while both are exposed to geopolitics.
• Buy DAL and UAL on a 6-12 week trade if crude and jet fuel soften; airlines should see faster multiple expansion than the commodity sees downside, with asymmetric upside if fuel hedging eases input costs.
• Short TIPS breakevens via inflation-protected duration proxies or long IEF vs short TIP if energy volatility collapses; this is a cleaner expression than outright rates if the market reprices inflation risk lower.
• For a high-conviction optionality trade, buy OTM calls on industrials with energy intensity (e.g., KMX, CAG, DE) only after crude confirmation lower; the setup improves if freight, packaging, and input costs roll over in tandem.