JPMorgan Gives Up on Trying to Forecast an End to Trump's Iran War

JPMorgan has abandoned its baseline forecast for the Iran war after economic thresholds it expected would force President Donald Trump toward an agreement were breached without producing a durable exit.

“For the first time since the start of the Iran conflict, we don’t have a baseline view,” Natasha Kaneva, JPMorgan’s head of global commodities strategy, said in a Thursday note according to CNBC.

“We simply don’t know how to model the endgame.”

Economic Redlines Fail to Produce an Exit

At the start of the war, JPMorgan assumed mounting economic pressure would eventually push Trump toward an agreement to reopen the Strait of Hormuz.

The bank’s key thresholds included oil above $100 a barrel, gasoline near $5 a gallon and the 10-year Treasury yield above 5%.

Six months later, several of those levels have been breached.

“Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more,” Kaneva said.

Washington and Tehran reached an interim agreement in June to reopen Hormuz, but the arrangement quickly collapsed and fighting resumed.

Oil has since moved back above $100 a barrel, while the 10-year Treasury yield crossed 5% this week. Seasonally adjusted pump prices are at record highs.

Diesel has climbed above $6 a gallon as inventories fall to record lows, according to Kaneva.

No Clear De-Escalation Signal

JPMorgan sees little evidence that either Washington or Tehran is preparing to step back.

The idea that the disruption will prove short-lived is becoming harder to defend, Kaneva said, as the conflict expands rather than contracts.

Saudi Arabia has shut its East-West pipeline after damage from a drone attack launched from Iraq.

Iran-aligned Houthi militants have also made advances that could strengthen their position over tanker traffic in the southern Red Sea.

Trump, meanwhile, told Axios on Thursday that he was approaching another decision over whether to resume large-scale combat operations against Iran or move toward ending the war.

“I have a big decision coming up,” Trump said. “Do I want to go in and annihilate them (the Iranian regime) or do I not? It’s a big decision. Anything could happen with me.”

Oil Market Prices Further Supply Losses

JPMorgan estimates a fair value of $90 a barrel for Brent crude, but the international benchmark is trading near $105 after approaching $110 earlier this week.

The bank calculates that every 1mn barrels a day of lost supply adds about $4 to futures prices.

On that basis, Kaneva said the market is pricing the risk of roughly 4 million barrels a day of additional losses on top of 10 million barrels a day already disrupted.

The broader energy picture has also been complicated by Ukrainian strikes on Russian refineries, despite Trump’s statement on Monday that Kyiv and Moscow had agreed to halt attacks on energy facilities.

Inventories Still Provide a Buffer

The main constraint on further price gains is the volume of oil still held in inventories.

Stocks have fallen by 555 million barrels, substantially less than the 1.6 billion-barrel decline JPMorgan’s commodities team had initially forecast.

That leaves the market with a larger buffer against an extended supply shock than the bank once expected.

“In short, there is still enough dry powder to keep prices contained, for now,” Kaneva said.