In a report last Friday, JPMorgan proposed a "worst-case scenario" for the Crude Oil Product market under the Iran conflict: in this scenario, "oil prices react in an exponential rather than linear increase, and the impact on supply could exceed the reduction of 2.1 million barrels per day in Iranian oil exports."
On June 16, the financial network reported (Editor: Xiaoxiang) that in a report last Friday, JPMorgan proposed a "worst-case scenario" for the Crude Oil Product market under the Iran conflict: in this scenario, "oil prices react in an exponential rather than linear increase, and the impact on supply could exceed the reduction of 2.1 million barrels per day in Iranian Crude Oil Product exports."
In an updated report released over the weekend, JPMorgan raised the probability of this "worst-case scenario" from 7% to 17%. In that report, JPMorgan commodity Analyst Natasha Kanvea wrote that Israel's attacks on Iran have more than doubled the probability of the worst case—closure of the Strait of Hormuz and an exponential surge in oil prices—to 17%.
As Kanvea explained in her latest report, the geopolitical risk premium has soared to a level $10 above the fair value of $66 derived from JPMorgan's model, indicating a 17% probability of the worst-case scenario occurring.
According to domestic authoritative media citing Iranian media reports on the 14th, two refineries in Bushehr Province, southern Iran, were attacked by Israeli airstrikes on Saturday, causing some facilities to explode and catch fire. According to Israel's "Homeland News," this is the first time Israel has attacked Iranian energy infrastructure, and it is the first time since the Iran-Iraq War in the 1980s that any oil refinery in Iran has been attacked.
In response, Kanvea stated that, "In the initial strike, Israel avoided energy targets," but this is no longer the case after Israel attacked two natural gas refineries processing products from the South Pars giant gas field in Iran, which is clearly a signal of escalation, indicating that Israel is now specifically targeting Iranian energy infrastructure.
In her latest report, Kanvea wrote that she believes the comfortable range for oil prices remains between $60 and $65, as continued rising energy prices may have a terrifying impact on inflation and reverse the trend of cooling CPI in the U.S. observed for months.
Thus, this JPMorgan strategist believes that "any geopolitical policy that may push up oil prices and inflation could succumb to Trump's primary goal of keeping energy prices low, which aligns with Trump's campaign promise to 'quickly defeat inflation, rapidly lower prices, and revive explosive economic growth.'"
However, given the dynamic developments of the situation and the potential chain reactions that this attack may trigger, this largest American bank currently does not wish to draw any benchmark conclusions. Kanvea has only provided the following status update:
Iran's production and exports: Iran's current daily crude oil production is 3.2 million barrels, with daily exports of 1.8 million barrels of crude oil and 350,000 barrels of oil products: Iran's production has steadily recovered from the low of 1.7 million barrels per day in 2021 to the current level of about 3.2 million barrels per day, but still below the peak of nearly 4 million barrels per day in 2017-2018. In terms of crude oil exports, it has increased to 1.8 million barrels per day, which is still 1 million barrels per day lower than the peak in May 2018, but nearly double the level at the beginning of 2022. At the same time, the current oil product export volume is 350,000 barrels per day, down 310,000 barrels per day from the peak in May 2024.
Sanctioned tankers: Currently, about 148 vessels carrying Iranian crude oil are under U.S. sanctions, involving 1.03 million barrels per day, accounting for 65% of Iran's crude oil export volume in 2024. Among them, 51 vessels are owned by the National Iranian Oil Company, which transported 0.7 million barrels per day last year, while the remaining 97 sanctioned tankers are owned by non-Iranian entities.
Iran's refining and export capacity: Iran has large refining facilities with a processing capacity of 2.2 million barrels per day and extensive oil export infrastructure. Its main oil export terminal is located on Khark Island in the Persian Gulf. However, strikes on this facility are unlikely to receive support from the U.S. government, as it would be wary of disrupting the oil market.
Oil flowing through the Strait of Hormuz - there are risks, but the likelihood of the strait being closed is low: Currently, 30% of the world's maritime oil trade - including 21 million barrels per day of crude oil and oil products - and 20% of the world's liquefied natural gas supply pass through the Strait of Hormuz. Although there are non-linear characteristics in how oil prices respond to an attack on Iran, highlighting the need to assess Iran’s retaliatory actions when considering the strategic significance of the Strait of Hormuz, JPMorgan assesses that the risks of the strait being blocked remain extremely low, primarily because such incidents have never occurred.
Editor/danial
