Leading global investment banking powerhouse JP Morgan has issued an extraordinary public acknowledgment that it cannot reliably forecast how oil prices will shift in the wake of the ongoing US-Iran conflict, telling investors in a candid analyst note that “we simply don’t know how to model the endgame” of the crisis.
When the conflict first erupted six months prior to the note, JP Morgan’s research team built projections around a set of key assumptions: that the Trump administration would enforce non-negotiable “economic red lines” that it would refuse to cross, making a diplomatic deal to reopen the strategically critical Strait of Hormuz a foregone conclusion by June. The bank identified four clear red lines that it believed would force Washington to seek a rapid resolution: oil prices climbing above $100 per barrel, US inflation hitting 4%, average retail gasoline topping $5 per gallon, and 10-year U.S. Treasury yields reaching 5%.
Half a year on, however, the situation has flipped: while gasoline still stays below the $5 threshold and inflation has not yet hit the 4% mark, oil prices have rallied back above $100 a barrel in recent weeks, and 10-year Treasury yields have crossed the 5% benchmark. “Many of those lines have been crossed, yet the exit strategy is less clear, not more,” JP Morgan’s commodities research team wrote in the note. “For the first time since the start of the Iran conflict, we don’t have a baseline view. We simply don’t know how to model the endgame.”
The admission from one of the most influential institutions in global finance lays bare just how difficult it has become to anticipate policy moves from former President Donald Trump amid the escalating regional crisis. An anonymous oil and gas industry source speaking to the BBC noted that it is highly unusual for such a high-profile investment firm to issue such a transparent note acknowledging a total lack of forecasting clarity, but added that the move is an honest reflection of the current high-uncertainty environment surrounding the conflict. Oil prices are a core input for inflation forecasting globally, as the commodity underpins nearly every sector of the modern economy, meaning even small shifts can reshape investment decisions across all asset classes. Currently, “The market is on edge,” JP Morgan analysts noted.
Adding to the fog of uncertainty, Trump himself confirmed last week that he does not expect the US-Iran war to conclude before November’s U.S. midterm elections. “Right after the election, oil prices are going to be tumbling downward,” Trump told reporters. “I think it’s going to take a little bit longer than the midterm.”
Sustained high oil prices have already driven sharp increases in the cost of living across the United States and the globe, with energy and fuel costs rising rapidly ahead of the Northern Hemisphere winter heating season. This week, the U.S. Federal Reserve, the country’s central bank, implemented its first interest rate hike in more than three years, and signaled that further increases could continue through 2027 in an effort to cool persistent inflation. Fed Chair Kevin Warsh justified the move by noting that “inflation is too high and has been for too long,” a position Trump has publicly rejected.
Even with current trading prices above $100 per barrel, JP Morgan analysts estimate that the “fair value” of Brent crude for September sits around $90 a barrel. The gap between fair value and current market pricing, they explained, reflects the extra risk premium traders are adding to account for the growing threat of broader trade disruption across key Middle Eastern chokepoints.
Beyond the Strait of Hormuz, the note identifies new supply risks emerging at another critical global shipping route: the Bab al-Mandeb Strait, where Iran-backed Yemeni Houthi forces have seized territory at the mouth of the waterway. The ongoing conflict between Russia and Ukraine continues to add additional upward pressure on global oil markets as well. With no clear signals of imminent de-escalation in either conflict, analysts noted that the long-held assumption that global oil supply disruptions would prove temporary is “becoming increasingly difficult to sustain.”