JPMorgan's oil strategists are no longer making predictions about when the war with Iran will end

JPMorgan has abandoned attempts to predict how and when the U.S.-Iran war, which has been ongoing for more than half a year, will end. “For the first time since the start of the conflict with Iran, we do not have a base-case scenario. We simply don’t know how to model the conflict’s outcome,” said Natasha Kaneva, head of global commodities strategy, in a note cited by CNBC.

So far, the oil market has weathered large-scale supply disruptions better than the investment bank had expected. However, analysts have warned that this margin of safety could run out.

According to Kaneva, at the start of the Iran crisis, JPMorgan assumed that several economic “red lines” would force U.S. President Donald Trump to reach an agreement to open the Strait of Hormuz around June. Among these milestones were: an oil price above $100 per barrel, gasoline at roughly $5 per gallon, and a yield on 10-year U.S. Treasury bonds above 5%. “Six months later, many of these lines have been crossed, yet the exit strategy has become less clear, not more,” the JPMorgan note states.

At the same time, neither Washington nor Tehran is sending clear signals of a willingness to de-escalate, JPMorgan notes. The assumption that the disruptions are temporary is becoming increasingly difficult to sustain, the investment bank warned. “In our view, the market is on edge,” the analysts said.

On Thursday, September 17, oil prices continued the decline that had begun the previous day. The rally was dampened by hopes for a swift restoration of the damaged East-West oil pipeline, through which Saudi Arabia supplies energy resources bypassing the Strait of Hormuz. In addition, while the pipeline remains out of service, Saudi Aramco has found a way to send additional shipments to Asian refineries—via Oman.

Nevertheless, oil futures are still trading above $100 per barrel. Specifically, contracts for the benchmark Brent crude for November delivery were trading at just under $104 per barrel on the evening of September 17. According to JPMorgan’s estimate, their fair value is $90.

According to Kaneva, JPMorgan estimates that every 1 million barrels of lost daily supply adds about $4 to the price of futures. This means that the market is pricing in the risk of a further reduction in daily exports of approximately 4 million barrels—on top of the 10 million barrels per day that have already been lost, according to a note from Yahoo Finance analysts.

However, they go on to say, oil reserves are still sufficient to mitigate the effects of prolonged disruptions and keep prices in check. JPMorgan initially estimated that global reserves would decline by 1.4–1.6 billion barrels, whereas the actual decline has so far amounted to approximately 555 million barrels, as the market responded primarily with a drop in demand. As a result, the large-scale disruption did not lead to a sustained rise in oil prices, JPMorgan explains.

However, the situation may change, especially given that demand from China—the largest buyer of oil—is accelerating, notes Yahoo Finance. According to Kaneva, how the situation develops from here depends not so much on the duration of the conflict with Iran as on whether the oil market can continue to maintain its balance.

If supply from the Middle East remains at current levels, JPMorgan’s estimate suggests that prices in the fourth quarter could be $7 higher than the bank’s current forecasts—around $80 per barrel, according to Bloomberg.

The temporary agreement between the U.S. and Iran on opening the Strait of Hormuz, reached in June, quickly fell apart, and hostilities resumed and have escalated in recent weeks.

The Strait of Hormuz remains virtually closed to traffic: just over ten ships pass through it each day, whereas before the war the number exceeded 120, according to Yahoo Finance. Against this backdrop, tensions have escalated on yet another front: the Tehran-backed Houthis have intensified their pressure on Saudi Arabia. They have captured a key port city in Yemen and have effectively established control over the southeastern coast of the Red Sea, along which a vital oil supply route runs.

Trump said Thursday that he is nearing the point where he will have to decide whether to resume large-scale military operations against Iran or end the war. “I have an important decision to make,” he said in an interview with Axios. “Do I want to go in there and destroy them [the Iranian regime] or not? It’s an important decision. Anything could happen to me.”

This article was AI-translated and verified by a human editor