JP Morgan admits it can't forecast end of Iran war due to Trump's flip-flopping

JP Morgan has said that it is unable to forecast the end of the US war with Iran, in an admission that its own assumptions about the war's dynamics have not held up.

"For the first time since the start of the Iran conflict, we don't have a baseline view. We simply don’t know how to model the endgame," the bank's global commodities team said in a note published on Thursday.

This is because the underlying assumptions about US President Donald Trump's own red lines, which in theory would limit the war's duration, have not held up.

These include $100 oil, $5 a gallon of petrol, and 4% inflation or 5% yields on 10-year Treasuries, US government bonds that it sells to prop up government spending.

"Those constraints gave us an implicit timeline, and we expected that by June there would be some form of agreement to reopen the strait," the note said, adding that all of these have failed to compel the Trump administration to end the war and ensure the Strait of Hormuz reopens.

Since the start of the Iran war, the closure of the Strait of Hormuz has dramatically affected the global commodity market, with 20% of the world's oil and gas entering the global market through the key waterway.

The price of oil has dramatically fluctuated as oil exports slumped at the immediate start of the war, then picked up as alternative export routes were found, including Iraqi exports via land through Syria, Saudi Arabia's diversion through its East-West Pipeline, the UAE's diversion through its Fujairah pipeline, and a US initiative to smuggle out oil via the strait, bypassing Iranian attacks.

Yet, struggles to export oil have continued as Iranian attacks still threaten maritime shipping, and the reignition of the Yemeni civil war sees Houthi attacks against Saudi oil infrastructure.

"With no clear signals from either the US or Iran that they are prepared to de-escalate… the assumption that the disruption is temporary is becoming increasingly difficult to sustain," JP Morgan's note read.

Has Trump and the war affected economic forecasts?

Jamie Brito, the Executive Director in Refining & Oil Markets at Dow Jones Energy, told The New Arab that the situation is "everybody's energy nightmare. What everybody had feared for the last decades came to fruition this year".

"We are on uncharted territory. Every single analyst team is in uncharted territory. It's quite difficult to predict this kind of, you know, extreme scenario," he said.

Brito said his team's forecasts were based on its observations and analysis of trade, oil production, refining, and other key nodes in the market. Many teams look at these nodes for their own forecasts.

He added that key signposts can be used to understand where things may change, including this summer's World Cup in the US, Canada and Mexico, the establishment of the Memorandum of Understanding between the US and Iran in June, as well as the upcoming midterm election in the US, which is the next signpost.

Trump's rhetoric, however, is increasingly being dismissed in forecasts.

"What we are acknowledging, or what people are seeing, I think is the fact that you cannot expect, you cannot wish or anticipate that the political arena is going to be forced to capitulate or to accept some kind of negotiation and ceasefire, because of some political pressure," Brito said.

What does JP Morgan’s admission mean?

Trump's messaging, and that of his administration, has flip-flopped since the start of the outbreak of the war with Iran.

Initially saying the war would be short, his administration fumbled on its justifications for launching the war. It gave differing reasons for launching the war, including aiming to stop Iran from getting nuclear weapons, regime change, and has even threatened to destroy the country despite seeking negotiations with it.

Trump's most recent prediction for the war is that it would end after the midterms.

Neil Quilliam, an associate fellow with Chatham House's Middle East and North Africa Programme specialising in energy policy and geopolitics, told The New Arab that the admission from JP Morgan is less a statement that its team, or the industry, expects the war to get worse or of a worse economic outcome, but that "some of the assumptions underpinning its forecasting framework no longer hold".

"Assumptions that analysts would ordinarily use to construct an endgame have become much less reliable, and may remain so for the remainder of the Trump administration," he added.

Quilliam said that Trump's statements, and the fact that they don't necessarily reflect the administration's policy on the ground, cause an "unusually challenging environment" for businesses and markets to navigate, which make it difficult for forecasters to establish a baseline for investment decisions.

JP Morgan's statement, he said, is more an admission that "the range of plausible outcomes [of the war] has widened while confidence in assigning probabilities to them has collapsed".

"This is an arguably more significant admission. Markets can price known risks. They find it much harder when there is no reliable framework for judging which outcome is most likely," Quilliam said.

This, in turn, has knock-on effects for economic decision-making.

"Business can still plan around a range of scenarios, but attaching confidence to a single base case becomes increasingly difficult when the political decision-making driving the crisis remains so unpredictable."