Will Trump Chicken Out and Make an MOU with Iran before the China Visit?
● Wall
Street soared to a lifetime high on TACO
(Trump Always Chickens Out) trade amid hopes of a US-Iran peace deal MOU.
● Ahead
of the Nov’26 mid-term election, chaotic Trump is in a dilemma as any ‘undue’ concessions to Iran may cost him
‘MAGA’ support.
● But
too much hard stance & the SOH double blockade and higher oil may cost him
the midterm and trifecta.
As of May 6,
2026, US-Iran indirect negotiations (through Pakistan) have entered a decisive
phase, with Iran expected to deliver its formal response today to a US-drafted
one-page memorandum aimed at ending the early 2026 Iran War. Mediated primarily
by Pakistan, the talks come amid cautious optimism from President Trump and
mounting international pressure to resolve the crisis that has crippled
navigation through the Strait of Hormuz. (SOH).
Trump has
described “very good talks” over the past 24 hours, while Saudi-based outlet Al
Hadath reports intensive communications focused on a gradual reopening of the
SOH with potential breakthroughs for stranded vessels in the coming hours. This
momentum aligns with broader incentives, including Trump’s upcoming summit with
Chinese President Xi Jinping around May 14, where a visible de-escalation would
strengthen the US position.
The 2026
conflict, triggered by US-Israeli strikes in late February and Iranian
retaliation that restricted the SOH, has caused significant casualties,
economic damage, and global energy volatility. A framework agreement could
unwind the SOH risk premium, ease inflationary pressures, and open pathways for
longer-term nuclear and sanctions resolutions. Yet deep distrust, logistical
constraints (highlighted by the pause of Project Freedom), and divergent
priorities keep the outcome uncertain.
Background: From
Operation Epic Fury to Fragile Ceasefire and Project Freedom
The conflict
escalated in late February 2026 when the US (Trump) and Israeli forces launched
Operation Epic Fury, targeting Iranian nuclear and military infrastructure.
Iran responded with a deluge of ballistic, hypersonic & cluster missiles
and drone attacks, alongside measures that effectively restricted commercial
shipping through the SOH — a vital chokepoint that carries about 20% of global
oil and significant LNG volumes.
A Saudi-brokered
or Pakistan-facilitated ceasefire announced on April 8 provided an initial
two-week pause in hostilities, later extended by Trump indefinitely. Early
direct talks in Islamabad showed promise but faltered over core issues such as
nuclear enrichment, sanctions relief, security guarantees, and SOH access. This
led to renewed pressure tactics, including the US naval blockade of Iranian
ports and limited maritime incidents.
Pakistan has
consistently served as the primary channel, shuttling proposals and maintaining
trust with both sides. Pakistani officials, including the Foreign Minister,
have described their role as converting the ceasefire into a permanent end to
the war.
The One-Page
Memorandum of Understanding (MOU) and Iran’s Expected Response
Central to the
current push is a US-proposed one-page, 14-point MOU. According to
sources cited by Axios and Reuters, the document seeks to:
●
Formally end active hostilities.
●
Establish a short (approximately
30-day) negotiating window for detailed agreements.
●
Implement a moratorium or suspension
of Iranian uranium enrichment with international verification.
●
Outline phased sanctions relief.
●
Restore free and safe transit through
the Strait of Hormuz (SOH).
Iran submitted
its own 14-point proposal earlier, emphasizing comprehensive security
guarantees, lifting of the naval blockade, sanctions removal, and broader
regional issues. Iranian officials, including Foreign Ministry spokesperson
Baghaei, confirmed the US response is under review. A formal reply is
anticipated today via Pakistani mediators. Some Iranian parliamentary figures
have characterized certain reported US terms as a “wish list,” underscoring the
need for what Tehran views as a fair and balanced outcome.
Trump’s Strategy:
Optimism, Pressure, and Energy Diplomacy (Peace through Strength)
President Trump
has maintained a characteristic dual approach and peace through strength. On
May 6, he highlighted strong progress, stating the US is “dealing with people
who want to make a deal very much” and that “Iran won’t have a nuclear weapon —
they’ve agreed” on key elements. He met with ExxonMobil and Chevron executives
at the White House, signaling preparations for post-agreement energy market
normalization.
In a Truth Social
post, Trump made the conditions explicit: if Iran accepts the agreed terms,
Operation Epic Fury ends, and the Strait opens fully; otherwise, intensified
military action would follow. He has avoided hard deadlines but continues to
project strength.
Project Freedom
Pause and Gulf Ally Constraints
A significant
tactical development was the announcement and rapid pause of Project Freedom,
the US naval and air operation to escort vessels through the SOH. Launched with
public fanfare, the mission achieved limited transits but was halted within
36-48 hours; no commercial ship of any country is ready to sail through the SOH
with so much uncertainty and risk of Iranian fires.
NBC News
reported, citing US officials, that Saudi Arabia denied the use of Prince
Sultan Air Base and restricted American aircraft from transiting its airspace.
Other Gulf States were reportedly surprised by the timing. A conversation
between Trump and Crown Prince Mohammed bin Salman (MBS) did not fully resolve
the differences. Saudi sources emphasized support for Pakistan’s diplomatic
efforts and noted the fast-moving nature of events. The White House maintained
that allies were notified in advance.
This episode
revealed practical limits on sustained US military operations in the Gulf,
including dependence on regional basing and overflight rights, and a preference
among Arab Gulf states for diplomacy while talks remain active.
China-Iran
Engagement and Broader International Context
On May 6, Iranian
Foreign Minister Abbas Araghchi met with Chinese Foreign Minister Wang Yi in
Beijing. China’s protocol-based diplomacy called for an immediate comprehensive
ceasefire, swift reopening of the SOH as an international concern, and affirmed
Iran’s right to peaceful nuclear energy. The meeting, occurring shortly before
Trump visited China, underscores Beijing’s stakes as a major importer of
Iranian and Gulf oil and its interest in regional stability.
Parallel efforts
at the United Nations (UN) include a US-Gulf-backed draft resolution on freedom
of navigation in the Strait. Iran has urged rejection of the text as
“politically motivated,” insisting that only a permanent war-ending agreement
can sustainably resolve the issue.
Latest Momentum:
Gradual Hormuz Reopening and Stranded Ships
Positive signals
emerged on May 7 from Al Hadath, reporting intensive communications aimed at a
gradual reopening of the SOH. Understandings are reportedly being developed for
phased steps, potentially starting with humanitarian or limited commercial
passages for vessels currently stuck. The outlet suggested breakthroughs for
stranded ships could materialize in the coming hours.
This development
aligns with Trump’s incentive to secure tangible wins ahead of his summit with
Xi Jinping. Resolving even partial access to the SOH would reduce global energy
volatility, demonstrate diplomatic progress, and limit China’s leverage on energy
security issues. Markets have shown sensitivity to these reports, with some
downward pressure on oil prices reflecting unwinding of the Hormuz risk
premium.
Conclusions:
Trump Always Chickens Out (TACO)
The US-Iran
negotiations in early May 2026 illustrate the complexities of coercive
diplomacy in a multipolar landscape. Military pressure and economic leverage
created the conditions for dialogue, while Pakistan’s persistent mediation has
kept channels open. Recent developments — including the pause of Project
Freedom due to Saudi airspace restrictions, China-Iran consultations, and
reports of intensive efforts toward gradual Hormuz reopening — highlight both
progress and persistent constraints.
Today’s expected
Iranian response to the US memorandum represents a critical test. A
constructive reply could accelerate phased de-escalation, enable limited
reopenings for stranded vessels, and lay the groundwork for a broader framework
agreement. Even incremental progress on the Strait would deliver immediate
economic relief and build momentum ahead of the Trump-Xi meeting.
Whether
Thursday’s (May 7, 2026) expected
Iranian response unlocks further progress or leads to extended
brinkmanship, the 2026 Iran War appears closer to a negotiated conclusion than
at any point since it began. Diplomacy, backed by credible pressure and
third-party facilitation, remains the most viable path forward in this
high-stakes environment.
Trump is demanding 20-years of nuclear
enrichment ban for Iran, while Iran is offering 5-years. Although Iran and the
US may agree on a 10-year outclear enrichment ban (middle ground), Iran may not
compromise with its missile programs and the SOH leverage. It will ensure joint ownership along with
Oman for the SOH toll tax system for the reconstruction effort. But Trump may
not be in a position to accept such concessions for Iran, as it may further
damage his political prospects ahead of the November’26 mid-term election,
which Trump is set to lose pathetically.
Trump is now seeking an immediate face-saving
exit from his Iran war mess. President
Trump is reportedly looking for a quick and face-saving way to end the ongoing
conflict with Iran, as the war has become increasingly problematic for his
administration. According to sources close to the situation, Trump may have
initiated the military campaign against Iran partly under pressure from Israeli
Prime Minister Benjamin Netanyahu. Some observers have even speculated that the
Epstein files could have played a role in influencing Trump’s decision.
The war was also seen as a potential strategy to
divert growing public attention away from the ongoing trade and tariff
disputes, as well as the recent Supreme Court controversies, ahead of the
critical November 2026 midterm elections. However, the plan appears to have
backfired. While the conflict initially boosted military-industrial production,
the sharp rise in energy prices — particularly gasoline — has fueled higher
inflation, which is now causing more economic damage to the United States than
the short-term benefits gained from increased defense manufacturing. As a
result, Trump is said to be actively seeking an honorable exit from his “Iran
war mess.”
As a part of the expected MOU, Trump may extend
the Iran ceasefire by up to 3 months, potentially until the November 2026
midterm elections. President
Trump is reportedly considering extending the current ceasefire with Iran for
another 90 to 180 days. This would likely push any major decisions or potential
resumption of hostilities until closer to or after the November 2026 midterm
elections. Analysts believe Trump is not in a strong position to launch another
full-scale military campaign ahead of the elections. Instead, he is expected to
use the period until October 2026 to push aggressively for what he calls a
“great Iran deal” — a comprehensive nuclear agreement that he can present as a
major diplomatic victory.
However, a significant trust deficit exists
between Iran and the United States. Iran is unwilling to surrender under direct
American pressure, particularly by allowing the continued US naval blockade or
handing over its highly enriched uranium (the so-called “nuclear dust”)
directly to Washington. One possible middle path being discussed involves China
playing a mediating role. Under this scenario, China could take delivery of
Iran’s highly enriched uranium stockpile as a third-party guarantor. The Strait
of Hormuz remains almost completely closed under a double blockade — the US
blocking it from the outside and Iran maintaining restrictions from within.
This has caused oil prices to surge again, putting immense pressure on Trump
both domestically and internationally to reach a fair deal and reopen the vital
waterway.
With gasoline prices rising to almost $6 and
inflation concerns growing, Trump is under heavy pressure to secure a
face-saving exit from the Iran conflict. Despite strong performance in the
stock market, lower energy prices are seen as politically critical ahead of the
midterms. Many observers believe Trump may ultimately be forced to blink first
to bring down oil and gasoline prices for American voters.
As both Trump and
Iran are also seeking a face-saving deal to satisfy respective domestic
political compulsion, both may approach China (as a neutral, reliable
superpower) to take care of Iran’s so-called ‘nuclear dust’, which may pave the
way for a durable nuclear deal between the US and Iran. This may also lead to
the reopening of the SOH (Chinese interest) and help to lower energy cost for
Trump (ahead of the November’26 mid-term election).
But in reality,
even if the SOH reopens immediately, it may take at least 6-months for the
restoration of the supply chain of Middle East oil & gas as the underlying
infrastructure needs time for restoration from Iran war-related damages. Thus,
oil may not dip much below $88-85 in the coming days, which may not be good for
net oil-importing countries and even the US, the biggest producer &
consumer of oil in the world now.
Lingering
elevated oil/energy/gasoline prices and higher cost of living may affect US
discretionary consumer spending, economic growth, and employment. In such a
scenario, both Main Street and Wall Street are bound to suffer, and Trump is
bound to capitulate first from his war mongering to his Nobel Peace Prize
narrative (‘peace through strength’). The Iran war may have already cost the US
exchequer at least $100B directly and indirectly, much more in 5-weeks of
active conflict.
Trump’s Iran war
may be over, but the SOH blockade is not until Iran signs a favorable
(dace-saving) peace deal/MOU. Trump may not launch another full-scale Iran war
ahead of the mid-term election (November’26) and the FIFA World Cup
(soccer/football) in June-July 26. But Trump is also seeking a face-saving exit
from his Iran war mess. He is now basically demanding Iran to surrender and
acknowledge ‘defeat’ as they have now ‘no military, air force, air defence or
Naval force’. Trump likes to see an acknowledgement from the US media &
public that he has ‘won’ the Iran war. In the absence of that ‘winning’
narrative, Trump may again try to lift out the ‘nuclear dust’ from Iran and
declare ‘victory’. But Iran may not oblige so easily this time, and if Trump/Iran
does not agree to shift the ‘nuclear dust’ to a neutral & responsible
superpower like China, then Trump may try to ‘snatch’ the nuclear dust.
The worst of the
Iran war may be over, but the SOH double blockade is not, and the overall
uncertainty & fragility remain. Although Trump may not launch an all-out
Iran war again due to various reasons, he may launch another surgical strike on
Iran’s nuclear facilities to snatch out the ‘nuclear dust’ and declare a
unilateral ‘victory’. As the largest producer of oil and military equipment
(industrial goods), the US may be the biggest beneficiary of the Iran war.
Also, the global
reserve currency status of USD (unlimited printing without any big devaluation
risk) and AI optimism are helping Wall Street, although Main Street may face
stagflation due to higher energy prices (oil & gas). The lingering blockade
of the SOH is more harmful for oil-importing economies like the EU, Asia
(India, Japan, and SK), and even China (despite its huge strategic reserve and
EV dominance).
Fair Valuation of
DJ-30: Is it running much ahead of the underlying fundamentals at the current
PE of around 30?
The CY25 EPS
(GAAP) of DJ-30 was around 1642 vs 1509 in CY24 and 1470 in CY21.
(index constituents’ weightage average). The
average run rate is around 7.4%; assuming 10% projected rate for CY: 26-28, the
projected fair value may be around 40639-44703-49173. At around 50000 (CMP),
the YE PE was around 30. Dow Jones Industrial Average (DJ-30) should correct
going forward as it reaches the historical bubble zone. Lingering Iran war
& trade/tariff war tensions, higher oil, the potential
stagflation/recession, gradual de-dollarization, multi-polar world (led by
China/Yuan), and AI bubble (GCC investors may back off after Iran war tragedy)
might be some of the potential triggers, along with Trump’s chaotic policies.
Also, Trump’s Iran war may result in another 9/11 type of incident (Laden &
Co) in the US, and it may be an easy target of terrorism.
Technical
outlook: DJ-30, NQ-100, SPX-500, Oil and Gold
Looking ahead,
whatever may be the narrative, technically Dow Future (CMP: 50000) now
has to sustain over 50700 for a further rally to 51000-51500 in the coming
days; otherwise sustaining below 50500/50200-50000/49500, DJ-30 may fall to
48500/48000-47600/46600 and 46000/45700*-45200*/45000 and
43800/43000-42000/39000-36800 in the coming days (base to worst case scenario).
Similarly, NQ-100
Future (28700) now has to sustain over 29200 for a further rally to
29500-30000 in the coming days; otherwise, sustaining below
29100/28500*-28100/27800, it may fall to 27400-27000 and
26600/26300-26000/25600, NQ-100 may again fall to 24600/24400-24000/23900, and
further to 23600/23300-22800/22400 and 21900-21000 in the coming days.
Looking at the
chart, technically SPX-500 (CMP: 7400) now has to sustain over 7600 for a
further rally to 8000-8300 in the coming days; otherwise, sustaining below
7550/7500-7300/7200 and 7100-6900, it may fall to 6835/6700 and further
6600-6500/6450 and 6350/6300-6250/6180 and 5860-4800 in the coming days.
