U.S./Israel-Iran War: the Middle East On Edge
NextFin News - JPMorgan's commodities strategists have abandoned their baseline oil forecast for the first time since the Iran conflict began, telling clients on Thursday that they "simply don't know how to model the endgame" as the war drags into its seventh month with Brent crude back above $100 a barrel. The admission marks a rare moment of analytical surrender from a bank that had, until now, kept publishing price targets through the chaos.
The confession is more than a mea culpa for the research desk. It is a signal that the market's oldest geopolitical playbook - assume red lines hold, buy the dip, wait for the risk premium to fade - has stopped working. When the strategist who called the shock can no longer build a model around it, the traders who price every barrel are flying without instruments.
The Baseline Has Broken
Natasha Kaneva, head of global commodities strategy at JPMorgan, led the team that delivered the verdict.
"For the first time since the start of the Iran conflict, we don't have a baseline view," the strategists wrote to clients. "We simply don't know how to model the endgame."
The logic behind the surrender is stark. "We assumed there were economic red lines the US administration would be unwilling to cross," the note said. "Six months later, many of those lines have been crossed, yet the exit strategy is less clear, not more."
The numbers around them explain the frustration. Brent crude is trading back above $100 a barrel - near $108 as of September 16, after settling at $101.21 on September 9, its highest close since late May. US gasoline is holding well above $4 a gallon, and diesel has risen to a record above $6 a gallon, with the AAA national average for diesel hitting $5.85 on September 4 before climbing past $6 in the following week. The 10-year Treasury yield has pushed past 5%, briefly topping that level for the first time since 2023 - the kind of simultaneous hit to household budgets and borrowing costs that turns an energy shock into a growth problem.
This is not the first time JPMorgan has thrown up its hands. In May, the bank published its first oil price forecast in two months, acknowledging it had "deliberately refrained from publishing price targets" since the conflict's early weeks. The forecast it eventually issued - Brent averaging $96 a barrel in 2026 and $75 in 2027, WTI at $89 and $70 - already looks conservative against a market that touched $119.47 in March and is again testing triple digits.
What makes the Thursday note different is what it implies about the sell-side research process itself. A baseline forecast is the anchor around which every other piece of analysis hangs - it is the reference point for hedging recommendations, corporate budgeting, and the risk models that sit behind trading desks across the street. When the anchor is pulled up, the entire chain drifts. Banks can tolerate being wrong; they cannot tolerate having no map at all.
Why the Models Are Failing
The failure is not a data problem. It is a structure problem. Oil models are built on a simple premise: supply, demand, inventories, and spare capacity converge toward an equilibrium, and geopolitical shocks create temporary deviations that mean-revert. That premise requires two things - a known supply function and a known political response function. The Iran war has destroyed both.
On the supply side, the disruption is real and compounding. JPMorgan has warned that production losses could exceed 3 million barrels a day within a week of intensified fighting, topping 4 million if the war continues for more than a couple of weeks. By day 15, the bank estimated shut-in output could reach 3.8 million barrels a day, rising to 4.7 million by day 18. Iraq is the most vulnerable, with roughly three days of storage before cuts become unavoidable; Kuwait has about two weeks.
The choke point is the Strait of Hormuz. Around 20 million barrels a day - roughly 20% of global petroleum liquids consumption - transited the waterway in 2024. Since March 2, vessel transit has slowed to a near standstill, the first near-complete halt in its recorded history. Iran, the third-largest OPEC producer, accounts for about 4.5% of global oil supply on its own, with output of roughly 3.3 million barrels a day of crude plus 1.3 million barrels of condensate and other liquids.
But the political response function is the real model-breaker. Analysts built scenarios around thresholds they believed Washington would not cross. Those thresholds kept moving. When the assumed guardrails disappear, scenario analysis - which assigns probabilities to a fixed set of outcomes - has nothing to attach probabilities to. The result is what economists call Knightian uncertainty: not risk, which can be priced, but genuine unknowability, which cannot.
This is why the usual modeling toolkit fails. A Monte Carlo simulation needs a distribution. A scenario matrix needs defined outcomes. Even a simple regression needs a stable relationship between variables. Strip away the distribution, the outcomes, and the relationship, and what remains is not a model - it is a guess dressed in spreadsheets.
The Second-Order Problem: It Is Not Just Oil
The first-order effect of the war is obvious: less supply, higher prices. The second-order effect is what is breaking the strategists' models, and it runs through the rest of the financial system.
Higher oil prices are not arriving in a vacuum. They are landing on an economy where the 10-year yield is above 5%, gasoline is at record levels for the season, and diesel - the fuel of trucking, shipping, and construction - has never been more expensive. The transmission channel is direct: every dollar added to the pump is a dollar removed from discretionary spending, and every cent of diesel is a cent added to the cost of moving goods.
That is why the equity strategists are now talking louder than the commodity team. Andrew Tyler, JPMorgan's head of global market intelligence, turned tactically bearish, warning that US stocks are not prepared for a full correction and that the S&P 500 could fall about 10% from its peak to roughly 6,270. Mislav Matejka, the bank's equity strategist, put the trigger plainly: if oil targets $120-$130 a barrel, "equities would have to reprice lower."
Here is the uncomfortable twist. History does not fully back the bears. Since 1974, in periods where oil prices have spiked more than 100%, the S&P 500 has posted a median gain of 6% during the spike period, and has tended to be higher one month, three months, six months, and one year after the surge. The "buy the dip" reflex that JPMorgan itself endorsed in March was built on exactly this record.
So why is this time different? Because the historical sample is dominated by shocks that resolved. The 1973 embargo ended. The 1979 revolution settled. The 1990 Gulf War lasted weeks. Even the 2022 energy crisis, which pushed Brent toward $139, eased within months as alternative flows rerouted. A seven-month conflict with no exit strategy, no fixed red lines, and a closed choke point is not in the sample. The past says buy the dip. The present says the dip may be the new floor.
There is a second uncomfortable twist hiding inside the equity data. Energy stocks have not participated in the oil rally the way the history books say they should. In the first quarter of 2026, the Energy Select Sector SPDR Fund rose 37%, but the gains were narrow - half of the index's constituents returned more than the fund itself, and the leaders, such as APA Corporation at 73% and Texas Pacific Land at 65%, were outliers rather than the rule. When crude doubles and the energy sector only partially follows, the market is saying something important: it does not believe the price level is durable enough to flow through to cash flows. Either the rally is a fake, or the equities are lagging badly. Both cannot be right for long.
The Counter-Thesis: The Market Is Overreacting to Uncertainty
The strongest case against the doom scenario is that uncertainty is being confused with catastrophe. Goldman Sachs, through co-head of global commodities research Daan Struyven, has warned of oil surging above $120 as attacks on shipping intensify, but the bank's base case remains that Persian Gulf exports will gradually recover as producers adapt - through alternative shipping routes and eventually additional pipeline capacity.
HSBC's senior oil analyst Kim Fustier has raised the bank's 2026 Brent forecast to $90 a barrel from $80, but even that upgrade is modest relative to spot prices, and Fustier sees markets not rebalancing until the middle of 2027 - a gradual adjustment, not a collapse. The US Energy Information Administration's September outlook projects Brent averaging $91 in 2026 and $74 in 2027, implying the current triple-digit spike is a temporary premium, not a new equilibrium.
The bear case on the bears rests on three pillars. First, large-scale reservoir capacity is difficult to lose permanently in the Gulf, where operators have decades of experience managing mature fields and temporary shut-ins - a point Kaneva herself has made, citing the COVID-era OPEC cuts that removed more than 10 million barrels a day before most production returned. Second, the price spike itself is doing the rebalancing work: demand destruction and inventory draws are already forcing the market toward equilibrium. Third, the equity market's historical resilience through oil shocks suggests investors are pricing a worse outcome than history delivers.
There is force in that argument. But it depends on the one thing JPMorgan says it can no longer model: the duration and escalation path of the war. If the conflict resolves within months, the $90-$100 range holds and the skeptics win. If it grinds on through 2027 with Hormuz effectively closed, the gradual-adjustment story breaks - and the market discovers that "unmodelable" was code for "underpriced."
What to Watch: The Signals That Will Settle the Argument
The falsifying signal for the JPMorgan surrender thesis is specific: if the Strait of Hormuz reopens to sustained traffic above 15 million barrels a day within the next two months, and Brent falls back below $85, the "no baseline" verdict was premature - the shock was cyclical after all, and the old models regain their power.
The falsifying signal for the skeptics is equally concrete: if diesel remains above $6 a gallon and the 10-year yield holds above 5% for two consecutive months while Brent trades above $110, the second-order damage is real, equity multiples have not finished repricing, and the structural-break call stands.
By time horizon, the picture splits. In the short term, sentiment and headlines dominate - any escalation sends oil toward $120, any diplomatic breakthrough sends it back to the mid-$80s. Over the medium term, fundamentals reassert: inventory draws, demand destruction, and non-OPEC supply response will either validate the $90-$100 range or prove it too low. Over the long term, the structural question is whether the Hormuz route can ever be trusted again - and if it cannot, the risk premium is not a spike but a permanent tax on every barrel that passes through.
The base case is a grinding stalemate: Brent in the $95-$110 range, gasoline above $4, diesel near record levels, and equity volatility elevated until the diplomatic track produces something tangible. The upside case - de-escalation and reopened shipping - returns Brent to the mid-$80s. The downside case - a full closure of Hormuz sustained for weeks - pushes oil toward $130 and delivers the 10% equity correction Tyler is warning about.
JPMorgan's analysts are not the first strategists to admit they cannot see the end of a war. But when the bank that built the baseline says the baseline is gone, the market is no longer trading oil. It is trading the probability that nobody knows what happens next - and that is a much harder thing to price.
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