Crude prices are on a high and Brent Crude prices surged as much as 7% on rising tension between Iran-Israel. Israeli Prime Minister Benjamin Netanyahu indicated that the operations may continue for a few days. According to JPMorgan, an “attack on Iran could spike oil prices to $120/bbl” but for now they are maintaining the “base case for oil prices in the low-to-mid $60/bbl” for the rest of the year,
JPMorgan explained that, “heightened security risks in the Middle East Prices reflect a 7% probability of a worst-case scenario, where supply impact extends beyond the reduction in Iranian exports and price reaction is exponential rather than linear.” However, they are downplaying the concerns at the moment.
4 reasons why JPMorgan believes crude prices may trade around $60 levels?
JPMorgan in its report clearly highlighted that they are downplaying geopolitical concerns and maintain their base case for oil prices in the “low-to-mid $60s oil for the rest of 2025, and $60 in 2026”
They are basing this target on the back of four reasons –
1.Hormuz closure a low risk event: According to JPMorgan, “the closure of Hormuz is a low-risk event as Iran would be damaging its own position, both economically and politically, by irritating its main customer.”
Just to explain to our readers, the Strait of Hormuz is a strategically important shipping route internationally. Historically, despite threats Iran has refrained from closing this to primarily in its own economic interest. However, there is a great deal of uncertainty about the future, especially if the conflict between Iran and Israel continues over a longer period.
2.Can Middle East afford another conflict: Another reason why JPMorgan is playing down the geo-political risk in the region is because they believe that the “main players in the Middle East have strong incentives to keep the conflict contained given the economic transformation currently planned and implemented in the Gulf region requires a sustained absence of conflict.” They believe that in the interest of regional development, this may not be stretched for too long.
3.US hopeful about reaching nuclear deal with Iran: Tension in the region has been rising in recent days as talks between the US and Iran over its nuclear program “seem to have reached an impasse.” JPMorgan highlighted that this “coincides with the expiration of the two-month deadline set by Trump for reaching a deal, with the sixth round of nuclear talks expected to take place in Oman on Sunday.”
The fact that the US administration “remains hopeful about the possibility of reaching a nuclear deal with Iran and continues to oppose military action,” is encouraging for them.
4.IAEA vote coming up: The timeline for negotiations is further compressed by the upcoming vote by the IAEA Board of Governors on Iran’s ‘non-compliance’ with nuclear non- proliferation obligations, scheduled for June 12 in Vienna. They believe that “this vote could activate the ‘snapback’ mechanism embedded in the 2015 JCPOA agreement, reinstating all UN Security Council sanctions on Iran that were lifted as part of the deal”
As a result, they are currently maintaining the base case scenario for crude. According to this, prices are seen hovering around low to mid $60/bbl levels going forward this year.