JP Morgan said it cannot reliably model the economic endgame of the US-Iran war, as oil prices, inflation and borrowing costs have moved beyond the bank’s earlier assumptions, according to BBC. The investment bank had expected a deal to reopen the Strait of Hormuz in June and said its red lines included oil above $100 a barrel, US inflation at 4%, gasoline above $5 a gallon and 10-year government borrowing costs at 5%.
In the note, JP Morgan said many of those thresholds have now been crossed, but the exit strategy is less clear. It estimated oil’s fair value for September at about $90 a barrel even though it has traded above $100 in recent weeks, and said the market is pricing in the risk of further disruption to trade. Analysts also pointed to risks in the Bab al-Mandab Strait and said there are no clear signs of de-escalation.