JPMorgan has given up after months of trying to predict when and how the Iran war will end. “For the first time since the outbreak of the Iran conflict, we do not have a fundamental outlook,” Natasha Kaneva, head of global commodity strategy, said in a note Thursday. “We simply don’t know how to model the endgame.” Kaneva said JPMorgan assumed at the start of the war that several economic red lines would force President Donald Trump to agree to open the Strait of Hormuz in June. These red lines included oil above $100, gasoline near $5 a gallon, and 10-year Treasury yields above 5%. “After six months, many of these lines have been crossed, but the exit strategy is not as clear, if not more so,” Kaneva said. The United States and Iran reached a tentative agreement to open Homulz in June, but the agreement quickly fell apart, leading to renewed fighting that has escalated in recent weeks. Oil prices are now above $100 again, the 10-year Treasury yield is above 5% this week, and pump prices are at seasonally adjusted record highs. To make matters worse, diesel prices have risen to more than $6 a gallon and inventories are at record lows, Kaneva said. Meanwhile, there has been no clear signal from the U.S. or Iranian governments that they are ready to de-escalate tensions, he said. “The assumption that the disruption is temporary is becoming increasingly difficult to maintain,” the analyst said. In fact, the conflict has only intensified in recent days. Saudi Arabia has shut down a vital east-west pipeline after it was damaged by a drone attack from Iraq. Iran-allied Houthi militants are making advances that could strengthen their control of tanker traffic in the southern Red Sea. And President Trump said in an Axios interview Thursday that he is at a crossroads between restarting major combat operations against Iran or ending the war. “I have a big decision to make,” Trump told Axios. “Do I want to go in and annihilate them (the Iranian regime) or not? It’s a big decision. I don’t know what will happen to me.” Meanwhile, Ukraine continues to attack Russian oil refineries despite President Trump’s assertion on Monday that Kiev and Russia had agreed to halt attacks on energy facilities. JPMorgan estimates the fair price for Brent crude at $90, while international benchmarks are trading around $105 per barrel, after approaching $110 per barrel earlier this week. Kaneva said the bank assumes futures prices will rise by about $4 for every million barrels a day of supply lost. This means the market is pricing in the risk of additional supply losses of around 4 million barrels per day on top of the 10 million barrels per day already out of supply, he said. But Kaneba said there were enough oil stocks left to cushion any prolonged disruption. Inventories have not fallen as rapidly as JPMorgan’s product team had initially expected. Inventories fell by 555 million barrels compared to Kaneba’s original forecast of 1.6 billion barrels. “In short, there is still enough dry powder to keep prices down at this point,” the analyst said.
