Middle East risks continue to escalate, JP Morgan: In the worst-case scenario, oil prices will rise to $120-130!
JPMorgan Chase analysis states that an Israeli attack on Iran's nuclear facilities would render the "baseline scenario" assumptions void. If a larger-scale conflict erupts in the Middle East, leading to the closure of the Strait of Hormuz, in this worst-case scenario, Iran's oil exports could decrease by 2.1 million barrels per day, and oil prices would increase exponentially, soaring to the range of $120-130. The current market has factored in a 7% probability of this worst-case scenario
Tensions in the Middle East escalate, JP Morgan warns that crude oil may rise to $130.
According to the latest report from CCTV News, in the early hours of the 12th local time, Israel launched an attack on Iran. Global Times cites Saudi media Hadass that, Israeli Defense Minister Katz announced that Israel had launched a preemptive strike against Iran.
According to the news from the Wind Trading Platform, JP Morgan's Chief Commodity Analyst Natasha Kaneva analyzed in her latest report that current oil prices are close to $70, about $4 higher than the fair value of $66 estimated by her model for June, indicating that the market has factored in a 7% worst-case scenario probability.
Kaneva further pointed out that if the conflict escalates, the response in oil prices will be exponential rather than linear. If the Strait of Hormuz is blocked, oil prices could soar to the range of $120-130.
The Strait of Hormuz as a Key Variable
The report states that the Strait of Hormuz is the world's busiest oil transport route, a narrow waterway only 21 miles wide that connects the Persian Gulf with the Indian Ocean, carrying 30% of global maritime oil trade and 20% of liquefied natural gas supplies, involving energy exports from Iran, Iraq, Kuwait, Bahrain, Qatar, Saudi Arabia, and the UAE.
Historically, despite Iran's repeated threats to block the strait—especially during the "Tanker War" of the Iran-Iraq War in the 1980s and during the standoff with the U.S. Navy in 2007-2008—the strait has never been truly closed.
JP Morgan's analysis suggests that Iran has never blocked the Strait of Hormuz because the cost of doing so would be too high for Iran itself. Not only would it violate international norms, but it would also directly threaten the economic interests of Gulf countries, potentially isolating Iran from the Gulf Cooperation Council (GCC).
The report further points out that if the conflict escalates to a full-scale war, this "red line" may be crossed.
Rationality and Madness in the Market
JP Morgan's basic forecast for oil prices remains cautious, believing that oil prices will stay in the low $60 per barrel range for the remainder of 2025, and $60 per barrel in 2026.
However, the report also states that if Israel attacks Iran's nuclear facilities, this basic scenario will be shattered. In the worst-case scenario, Iran's oil exports could decrease by 2.1 million barrels per day, and one-third of global oil production in the Middle East could be affected, making a surge in oil prices to $130 not mere talk. In the short term, the volatility of oil prices will significantly increase, and any "spark" in the Middle East could ignite the market. In the long term, if geopolitical tensions do not escalate into a full-scale war, oil prices may return to a rational range
