① JPMorgan believes that the partial resumption of navigation in the Strait has alleviated short-term supply pressures, but it has also reduced the urgency for the United States to reach a compromise with Iran; ② Iran's oil exports are near zero, the rial has depreciated significantly, and inflation is approaching 90%, with economic pressure continuously undermining its negotiating position; ③ European natural gas and refining margins, as well as U.S. diesel prices, have risen markedly, indicating that the energy shock is spreading from crude oil to transportation, industrial, and end-user prices.
Cailianshe, September 9 (Editor: Xia Junxiong) – In an energy market commentary released on September 7, JPMorgan stated that since the breakdown of the memorandum of understanding reached between the United States and Iran in June, $Brent Last Day Financial Futures Current Contract (NOV6) (BZcurrent.US)$ is testing the $100 threshold for the second time. Although some oil shipments through the Strait of Hormuz have resumed, there remains significant uncertainty regarding whether full and sustained openness can be maintained.
While different teams within JPMorgan hold divergent views on the ultimate trajectory of the conflict, there is a basic consensus: as long as normal commercial shipping through the Strait cannot be restored, global oil prices must continue to price in a higher geopolitical risk premium.
Why does the United States have the confidence to continue waiting?
JPMorgan’s Geopolitical Center believes that the urgency of the situation has decreased in recent weeks, primarily because the United States has assisted more tankers in passing through the Strait of Hormuz, temporarily helping to stabilize crude oil prices.
This has also strengthened the Trump administration’s resolve to continue applying pressure.
Currently, Iran’s oil exports are near zero, the Iranian rial has depreciated by nearly half against the U.S. dollar since January this year, and the domestic inflation rate is approaching 90%. Against this backdrop, JPMorgan believes that Iran is currently more eager than the United States to return to the negotiating table, while the United States may prefer to continue waiting in exchange for greater concessions from Iran.
The team’s short-term baseline assessment still leans slightly toward a diplomatic solution: there is approximately a 55% probability of reaching a limited agreement similar to the June memorandum of understanding through mediation. The recent announcement by Iran and Oman that they are close to finalizing a mechanism for the joint management of the Strait of Hormuz also provides a potential pathway for a diplomatic exit.
However, the other 45% of scenarios are more dangerous. If the market remains stable, the United States may maintain its hardline stance until after the midterm elections in November to secure a deal more aligned with its interests. At that point, Iran might increase missile and drone attacks against the Strait of Hormuz and U.S. military bases in the Middle East to regain negotiating leverage.
Oil prices are not high enough, which could instead prolong the stalemate.
JPMorgan’s oil trading team offers a more cautious assessment. The team believes the probability of the United States and Iran reaching an agreement has fallen to its lowest level since the outbreak of hostilities, with two potential outcomes ahead, both carrying significant risks.
Its base case scenario is that the Strait of Hormuz will remain a zone of ongoing contention after the U.S. midterm elections, potentially evolving into a protracted conflict. Iran may attempt to break the U.S. economic blockade by reducing traffic through the strait.
Another possibility is that the United States declares an end to the conflict and withdraws, but this could allow Iran to gain dominance over oil shipments through the strait, thereby securing new revenue streams and influence over oil prices.
JPMorgan believes that as long as crude oil prices remain at relatively manageable levels, the easiest strategy for the U.S. government is effectively to maintain the status quo.
This creates a rather paradoxical cycle: partial restoration of shipping through the strait keeps oil prices from spiraling out of control, while contained oil prices reduce the U.S. incentive to compromise quickly. As economic pressure continues to mount, Iran may instead escalate tensions to regain leverage. Consequently, JPMorgan’s trading team believes that sustained U.S. economic pressure is more likely to lead to escalation than to rapidly de-escalate the situation.
To what extent has traffic through the Strait of Hormuz actually recovered?
One of the biggest variables in the current oil market is the extent to which actual crude oil throughput in the Strait of Hormuz has recovered.
Natasha Kaneva, Global Head of Commodities Research at JPMorgan, previously estimated that each one-month delay in reopening the Strait of Hormuz would raise its forecast for the average oil price in 2027 by more than $15 per barrel.
However, there are significant discrepancies in the latest transportation data.
Media reports indicate that crude oil flows through the strait were approximately 7 million to 8 million barrels per day (bpd) in late August, whereas the U.S. government claimed that oil flows through the strait reached as high as 17 million bpd on certain trading days last week.
Meanwhile, Alex Plitsas, a Middle East expert at the Atlantic Council, estimates that actual shipping levels may be only 5 million to 7 million bpd.
Plitsas even considers a blockade lasting until 2027 as the baseline scenario. He argues that while the current strategic focus of the United States has shifted from large-scale military escalation to economic pressure and facilitating tanker navigation, any renewed attempt by Iran to lay mines in the strait could trigger a resurgence of U.S. military strikes.
Cost shocks are spreading from crude oil to diesel.
Supply pressures have already propagated throughout the energy chain. Reports show that European TTF natural gas prices have risen by 80% compared to mid-June, European refining margins have exceeded $40 per barrel, and U.S. diesel prices continue to hit record highs.
Refining margins and diesel crack spreads reflect the price differential between refined products and crude oil. Their widening indicates that tightness is not confined to the crude oil segment but extends to the supply of refined products. As diesel is widely used in freight, industry, and agriculture, sustained price increases may raise corporate transportation and production costs, ultimately passing through to end-user prices.
Jake Pashelinsky of JPMorgan's oil commodities trading team believes that long-term adjustment will ultimately rely on high prices to suppress demand and reduce dependence on the region. However, this process also implies higher costs for consumers and constraints on economic activity.
Energy stocks rise, but long-term capital remains hesitant.
The surge in commodity prices has driven the SXEP Europe Oil & Gas Index up by 15% from mid-June levels, approaching its highest point since the onset of the conflict.
Nevertheless, long-term institutional investors have not aggressively chased higher prices in energy stocks. JPMorgan observed significant buying interest in European oil stocks following the June agreement, but subsequent capital inflows have been fragmented. Investors are concerned that any sudden news of a ceasefire or diplomatic breakthrough could cause oil prices and energy stocks to drop sharply.
In terms of holdings, $BP PLC (BP.US)$ remains the most crowded hedge fund long position among major European oil stocks, while long-term capital favors $TotalEnergies (TTE.US)$ and $Shell (SHEL.US)$ . JPMorgan’s energy sales team currently maintains a preference for Shell, Galp, and Eni, with a favorable view on Saipem in the oilfield services sector, and believes it may still be premature to take profits on energy stocks given the current geopolitical environment.
Editor/KOKO