JP Morgan tells investors it cannot model oil prices in US-Iran war

Fed lifts rates as oil passes $100 and 10-year yield tops 5%

JP Morgan told investors in a research note this week that it can no longer forecast how the US-Iran war will affect oil prices, saying analysts “simply don’t know how to model the endgame.” The bank said it “assumed” at the start of the conflict that there would be “economic red lines” that the US would be unwilling to cross, and therefore it believed a deal would have been struck to open up the Strait of Hormuz shipping lane back in June.

Those red lines, the bank said, included oil prices rising above $100 a barrel, inflation rising to 4%, gasoline topping $5 a gallon and interest rates on 10-year US government borrowing hitting 5%.

“For the first time since the start of the Iran conflict, we don’t have a baseline view,” JP Morgan’s commodities research team wrote. “We simply don’t know how to model the endgame.”

“The market is on edge,” analysts said.

An oil and gas industry source told the BBC it was “unusual” for such a high-profile investment firm to issue such a note, but called it “a reflection on the state of play,” given the uncertainties around the conflict.

Oil prices have surged back above $100 a barrel in recent weeks, and the yield on 10-year US Treasury bonds reached 5.01% on September 18, according to Federal Reserve data. Gasoline remains below $5 a gallon and US inflation has not reached 4%, according to the BBC.

“Six months later [since the war began], many of those lines have been crossed, yet the exit strategy is less clear, not more,” the commodities team wrote.

JP Morgan’s analysts estimated the “fair value” for oil in September at around $90 a barrel — roughly $10 below current trading levels — noting that “the market is pricing in the risk” of further disruption to trade.

The Federal Reserve raised interest rates this week for the first time in more than three years, signaling further increases could come this year and into 2027 in an effort to slow rising prices. Fed Chair Kevin Warsh said the decision was made because “inflation is too high and has been for too long.” Trump publicly disagreed with the move.

Trump told reporters last week that he did not expect the Iran war to end until after November’s midterm elections. “Right after the election, oil prices are going to be tumbling downward,” Trump said. “I think it’s going to take a little bit longer than the midterm.”

JP Morgan’s analysts cited further risks to oil supply in the Middle East, noting that Yemen’s Houthis — which are backed by Iran — had seized an area at the mouth of the Bab al-Mandab Strait, another key international shipping route. The conflict between Russia and Ukraine also continues to affect global energy markets.

With “no clear signals” of the war de-escalating, the analysts wrote, the assumption that global oil supply disruption was temporary is “becoming increasingly difficult to sustain.”