'We simply don't know' - JP Morgan struggling to forecast oil prices due to Trump's war with Iran

What Happened

JP Morgan told investors in a note that it "simply don't know how to model the endgame" of the US-Iran conflict, abandoning its baseline forecast for oil prices. The bank said it had assumed at the war's start that the Trump administration would not cross economic red lines—oil above $100 a barrel, inflation at 4%, gasoline at $5 a gallon, and 10-year Treasury yields at 5%—and that a deal would reopen the Strait of Hormuz by June. Six months into the conflict, oil has surged back above $100 and the 10-year yield has crossed 5%, while gasoline remains below $5 and inflation below 4%. The commodities research team said, "For the first time since the start of the Iran conflict, we don't have a baseline view." JP Morgan estimated a September "fair value" for oil of around $90 a barrel despite spot prices above $100, arguing the market is pricing in further supply disruption risk. Analysts cited Yemen's Houthis—described as backed by Iran—seizing an area at the mouth of the Bab al-Mandab Strait, and the continuing Russia-Ukraine conflict. US President Donald Trump last week told reporters he did not think the Iran war would end until after the November midterm elections, after which "oil prices are going to be tumbling downward." The Federal Reserve raised interest rates for the first time in more than three years; Fed Chair Kevin Warsh said the move was because "inflation is too high and has been for too long."

Key Actors

Why It Matters

The inability of a major investment bank to model the conflict's endgame signals that oil markets are assigning a sustained geopolitical risk premium. Oil above $100 is feeding US inflation, prompting Federal Reserve rate increases that could slow the economy. Disruption around the Strait of Hormuz and Bab al-Mandab affects global shipping and energy supplies, linking the Iran conflict to domestic US politics ahead of midterm elections and to wider market volatility.

Watch For

Watch for the November US midterm elections, which Trump has cited as a potential inflection point for oil prices; any Federal Reserve rate decisions later this year and into 2027; whether JP Morgan's $90 fair value converges with spot prices; any reopening of the Strait of Hormuz or further Houthi actions in the Bab al-Mandab; and developments in the Russia-Ukraine conflict affecting oil supply.