From Wall Street to the White House, the dish everyone’s talking about this week is the Persian Taco. It’s what’s served when Trump chickens out in Iran.

In the early hours of Monday morning, witnessing oil prices surge, stock futures plummet and bond yields climb due to his threat to pummel Iran’s civilian power infrastructure, the president hurriedly walked it back, announcing he would put off the bombing because talks with Iran were actually going great. After the bombast and bloodshed, it was time for Taco (Trump Always Chickens Out), a move he first put on display during the tariffs crisis last year.

Bonds snapped back in instants and the price of Brent crude recoiled to below $100 a barrel from more than $112 seconds earlier. By 9.30am in New York, the S&P 500 stock index had jumped 1.5%, defying futures contracts that had earlier signalled a 1% daily decline.

Maybe we should thank Trump for stopping American forces before they committed a war crime, setting off an inevitable tit-for-tat with Iran to blow up civilian infrastructure around the Gulf; delivering a gut punch to the global economy that would send financial markets into a tailspin.

But events in the hours after the president offered up his dish of Mex-Middle Eastern fusion cuisine suggest his tactic may have run its course. He can still inflict tremendous damage to the region and the world economy. Making extreme threats and walking them back will again provide Trump with the illusion of agency. But he no longer has control of events in Iran. He does not get to decide when the conflict ends. Markets are figuring out that that will probably be up to Tehran.

Oil rebounded on Tuesday and stocks gave up much of their Monday gains after Iranian officials denied the “productive conversations” Trump claimed had taken place “regarding a complete and total resolution of our hostilities”, and sent waves of missiles into Israel, Iraq and other American allies in the Gulf.

Though markets welcomed news late on Tuesday that Washington had sent Iran a peace plan, they have freaked out again since then, as investors figured out that the president’s words mean little.

This is not the first time markets sense Trump’s waning power to shape events. On 9 March, the president had another Taco episode and tried to stop rising oil prices by claiming the fighting would end “soon, very soon” because the war was “very complete, pretty much”. The S&P index rebounded that day. But it quickly resumed its decline.

On “liberation day” in April last year, when the Taco trade was christened, Trump was roughly in control of events. He imposed a round of what he called “reciprocal” tariffs on imports from every patch of land on earth, including islands inhabited exclusively by penguins. Markets went haywire. So he backtracked to calm the markets down.

No great damage was done to the economy. Over subsequent months, as Trump again raised tariffs against groups of countries in a somewhat more gradual, piecemeal way, markets reacted more calmly, especially since the harm from his maneuvers – to growth and inflation – appeared muted. The dollar suffered, but the stock market rallied.

Trump is dealing with a trickier landscape now. The November midterm elections loom and he is underwater in opinion polls. Americans didn’t approve of this war from the get-go and their opposition has increased as the average price of gas at the pump has risen to near $4 a gallon. The OECD forecast that US inflation will surge to 4.2% this year. Trump’s challenge is that his objectives are in conflict. He desperately needs to end the war and bring the fleet home. And he desperately needs to unblock the supply of oil through the strait of Hormuz, which Iran now controls.

Iran, by contrast, has time. Its leadership has already been taken apart. Its military has been devastated. But the regime remains in control and there is little indication that it is about to be swept from power. As we have seen, it is capable of imposing enormous costs on the world by throttling the strait and depriving the global economy of 12.5m barrels of oil and 11.5bn cubic feet of gas a day.

Tehran’s incentive to back down is minimal. It probably calculates that the only way to prevent future attacks is to demonstrate how much damage it can inflict in response. And there is nothing the US can do about this unless it puts boots on the ground, which would raise additional political problems in Washington.

Indeed, Iran reportedly responded to Washington’s peace proposals by putting up some demands of its own, which included recognition of Iranian sovereignty over the strait of Hormuz and reparations for the damage caused by American and Israeli attacks. Press TV, the Iran state broadcaster, reportedly cited a senior official saying: “Iran will end the war when it decides to do so and when its own conditions are met.”

Markets are starting to understand this. If the US were in control of things, Trump wouldn’t threaten to bomb civilian targets – which is a war crime. At best for the president, it means he’s degraded all of Iran’s military targets and doesn’t know what else to do. At worst, it means he hasn’t figured out how to take them out.

On Thursday the S&P index lost 1.78% and closed at a new low for the year. The price of a barrel of Brent crude hovered around $108 in mid-afternoon. Like Trump, investors have been surprised to discover that after its leader was killed and its armed forces taken apart, Iran emerged perhaps deadlier and more resolute to hang on and cause more havoc than before. Trump’s Persian Tacos may not be enough to calm their nerves.