TACO indicator rises to 2.0 standard deviations as oil and gas shock lifts Asia FX risk alert
AI summary card
TACO indicator rises to 2.0 standard deviations as oil and gas shock lifts Asia FX risk alert
Nomura believes that Middle East tensions and rising oil and gas prices are pushing up TACO risk related to Trump policy retreat, but the risk has not yet become imminent.
- The TACO indicator has risen from around 0 standard deviations on July 6 to the current 2.0 standard deviations, reaching a recent high.
- The rise in the indicator has been mainly driven by recent increases in oil and natural gas prices, against the backdrop of renewed mutual attacks between the United States and Iran in the Middle East.
- The report believes TACO risk is not yet imminent because Trump has still not withdrawn threats that Iranian power plants and bridges could be attacked.
- Nomura estimates that, all else equal, an immediate 10% rise in oil and gas prices would push the TACO indicator to around 3.2 standard deviations.
Report interpretation
Overview
This report discusses the impact of rising oil and gas prices on Nomura's TACO indicator and the Asia ex-Japan FX risk environment after the US-Iran conflict intensified again. The report notes that since reports of Iranian attacks on ships on July 7, energy prices have continued to rise. On July 8, Trump declared that the memorandum of understanding on a ceasefire with Iran had ended, followed by mutual retaliatory attacks and the de facto closure of the Strait of Hormuz.
Core views
The core view is that TACO pressure is building but has not yet reached an imminent stage. Nomura's TACO indicator has risen from around 0 standard deviations on July 6 to 2.0 standard deviations, showing that higher oil and gas prices are strengthening pressure for Trump's eventual retreat; but Trump has not yet abandoned threats against Iranian power plants and bridges, so the report judges that while TACO risk is rising in the short term, it is unlikely to be triggered immediately.
Analysis framework
The report uses a chart alert and rolling Z-score indicator framework to track the TACO indicator's position relative to historical volatility, with recent oil prices, natural gas prices, and Middle East geopolitical events as the main explanatory variables.
Methodology notes
Rolling Z-score risk indicator
The report uses the TACO indicator to measure the intensity of the risk that Trump retreats under external pressure; the current reading is 2.0 standard deviations, and if oil and gas prices rise immediately by 10%, the indicator is estimated to increase to around 3.2 standard deviations.
Transmission of energy prices to policy pressure
The report views the recent rise in oil and natural gas prices as the main driver of the increase in the TACO indicator, and treats the US-Iran conflict and the closure of the Strait of Hormuz as the backdrop to the energy price shock.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Asia ex-Japan FXPrimary research subject
- Strengths
- If the conflict eases or oil and gas prices fall back, pressure on regional FX may decline.
- Weaknesses
- Higher energy prices and worsening risk appetite may weigh on regional currencies.
- Comparison
- The report does not provide a cross-sectional comparison of specific currency pairs.
- Risks
- An escalation of the Middle East conflict, a prolonged de facto closure of the Strait of Hormuz, and further upside in oil and gas prices.
- Crude oil and natural gasKey driving variables of the TACO indicator
- Strengths
- Price changes provide observable pressure signals for the indicator.
- Weaknesses
- A rapid rise in prices would intensify macro and FX risks.
- Comparison
- The report does not provide a relative strength comparison between oil and gas.
- Risks
- If oil and gas prices rise immediately by 10%, the indicator could climb to around 3.2 standard deviations.
Key data
- Report date2026-07-20The report cover date is 20 July 2026.
- Current TACO indicator reading2.0 standard deviationsThe report says the indicator has risen to a recent high.
- TACO indicator starting pointaround 0 standard deviationsThe report says it was around 0 standard deviations on July 6.
- When pressure began to risesince 2026-07-07The report says pressure has been rising since the US and Iran resumed mutual attacks in the Middle East on July 7.
- Ceasefire memorandum of understanding date2026-06-17The report says the US and Iran signed a ceasefire MOU about three weeks earlier.
- Scenario estimateAn immediate 10% rise in oil and gas prices would lift the indicator to around 3.2 standard deviationsThis estimate is based on all else remaining equal.
Impact & implications
For Asia FX, energy prices and Middle East geopolitical shocks may continue to raise risk premia and affect regional currencies through the US dollar, oil and gas import costs, and risk appetite. The report does not yet provide an immediate trading signal and is more focused on prompting investors to watch whether the TACO indicator continues moving into a higher standard deviation range.
Risks
- An escalation in mutual attacks between the United States and Iran.
- A prolonged or worsening de facto closure of the Strait of Hormuz.
- Further rapid increases in oil and natural gas prices.
- A sudden shift in Trump's policy rhetoric, leading to a repricing of TACO risk.
- Asia FX being hit by energy import costs and global risk appetite shocks.
What to watch
- Whether the TACO indicator breaks above 2.0 standard deviations and approaches the around 3.2 standard deviation scenario.
- Whether oil and natural gas prices continue to rise.
- Whether there are new military actions or diplomatic de-escalation signals between the United States and Iran.
- Transit conditions in the Strait of Hormuz.
- Trump's follow-up remarks regarding threats against Iranian power plants and bridges.