JPMorgan's top strategist warns: Iran situation shocks energy prices, the U.S. cannot remain unaffected!

Ask AI · Why are the returns from Iran’s blockade of the Strait of Hormuz far higher than expected?

Source: Jin 10 Data

For a long time, investors have generally believed that, since the United States has achieved net energy exports, its economy is strong enough to withstand energy-price shocks stemming from conflicts in the Middle East. However, in a latest report released on Monday by Michael Cembalest, Chairman of Markets and Investment Strategy at JPMorgan Asset and Wealth Management, this widely held assumption is directly challenged: the U.S. economy’s immunity to Middle East energy turmoil is far weaker than the market expects.

Cembalest points out that the United States is not in a safe zone. Even though, in the data, it is a net exporter of certain fuels, fluctuations in the global energy market can quickly rebound against the U.S. domestic economy through price transmission mechanisms.

Current market data has already validated this view: even though countries in Asia and Europe are trembling due to the Strait of Hormuz blockade, in reality, price increases in refined petroleum products in the U.S. domestic market—even crude oil prices—have actually exceeded those in Europe and Asia. Cembalest emphasized, “The independence of America’s fossil fuels is not able to serve as an economic firewall in the way investors imagine.”

In response to Iran’s blockade of the Strait of Hormuz, despite the White House issuing multiple ultimatums calling for immediate resumption of service, Tehran appears to have found that turning this global shipping choke point into a “toll booth” or even a “blockade zone” has delivered returns far beyond expectations.

The report cites the view of Dina Esfandiary, a Middle East economist at Bloomberg, saying that Iran realized the cost of hijacking the global economy is lower—and easier—than expected. Cembalest’s analysis suggests that even if the strait reopens tomorrow, restoring capacity will still take time. Even more severe, the United States, Israel, and Gulf countries are facing the predicament of a shortage of interceptor missile stockpiles.

Cembalest is especially focused on the shift in the nature of warfare. Iran’s breakthroughs in drone technology enable it to carry out highly effective “asymmetric warfare.”

The data show that although drone payloads are smaller, their costs are extremely low. With just one cheap drone, lethal strikes can be carried out against expensive warships, radar systems, or even energy facilities. By contrast, the U.S. Navy’s mine-sweeping capability is shrinking: all four active mine countermeasure ships of the current fleet have been placed on decommissioning plans, which undoubtedly increases the difficulty for U.S. forces to clear the strait.

Even though the market is shrouded in gloomy clouds, U.S. stocks are showing unusually “calm” performance, with their decline far smaller than the turmoil seen in the early stages of the 2022 Russia-Ukraine conflict. Wall Street analysts believe higher earnings expectations and a strong labor market are the pillars supporting the stock market.

However, strategists warn that this “safe-haven” sentiment may only be temporary. Although U.S. stocks still have resilience for now, if the Middle East conflict evolves into a drawn-out war lasting more than several months, its cascading effects on global supply chains and U.S. domestic prices will be amplified exponentially. By then, U.S. investors will have to face a reality: when true energy turmoil arrives, no one can stand entirely apart.