The warning is clear. JP Morgan analysts have projected that oil prices could surge to $120-130 per barrel if the Iran conflict escalates further. The Federal Reserve is watching closely, but there is no easy fix. The Fed cannot print oil, and cutting interest rates in an inflationary environment is off the table.
The stakes are enormous. Brent crude is already trading near $69.54, with WTI hovering around $68.07. Markets are pricing in risk, but the worst-case scenario remains unaccounted for. If military action disrupts the Strait of Hormuz, where one-fifth of global oil flows, the price spike could be immediate and severe.
Inflation is lurking. JP Morgan analysts warn that a $120 oil price would push U.S. consumer inflation back toward 5%, reversing months of economic stabilization. The Federal Reserve has been cautious, but a renewed oil shock could force rate hikes back onto the table.
The geopolitical backdrop is tense. The International Atomic Energy Agency has formally declared Iran in breach of nuclear non-proliferation obligations, marking a first in 20 years. Indirect U.S., Iran nuclear talks are set to resume, but Israel is reportedly weighing unilateral military action. The Biden administration has already pulled non-essential personnel from embassies across the region, signaling that preparations for escalation are underway.
The market reaction is mixed. Oil prices are supported by summer demand and low U.S. inventories, but macroeconomic headwinds and rising OPEC+ output could weigh on prices later in the year.
Sources:
https://oilprice.com/Energy/Oil-Prices/JP-Morgan-Oil-Could-Hit-130But-Were-Still-Calling-60.html
https://finbold.com/j-p-morgan-predicts-oil-price-on-potential-attack-on-iran/