JPMorgan Warns Oil Prices Could Rise to $120 a Barrel

Geopolitical tensions in the Middle East are once again roiling global energy markets. One focal point is the Hormuz Strait, a narrow shipping lane that forms the lifeblood of world oil trade. Analysts at JPMorgan warn that a prolonged disruption of the Hormuz Strait could trigger a substantial drop in global oil supply and could push global oil prices toward $120 a barrel in certain scenarios.

The Hormuz Strait is a strategic corridor connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is one of the world’s most important energy chokepoints, with about one-fifth of global oil and LNG flows passing through it daily. Because of its vital role, any disruption to vessel traffic in the region can directly affect global energy supplies.

In its research note, JPMorgan analysts assess that the closure of the Hormuz Strait could immediately affect oil production in Gulf producers, particularly Iraq and Kuwait. ‘Oil supplies from Iraq and Kuwait could start to stall within a few days if the Hormuz Strait remains closed,’ the JPMorgan analysts wrote.

In that scenario, supply disruption could reach 3.3 million barrels per day (mbpd) by the eighth day of conflict. The risk could increase if the disruption lasts longer; JPMorgan estimates losses could reach about 3.8 mbpd on day 15 and rise to 4.7 mbpd on day 18.

Meanwhile, Kuwait is estimated to have around two weeks before facing similar pressure to halt exports. Reuters also quotes two Iraqi oil officials who say the country could be forced to cut production by more than 3 mbpd if tankers cannot reach export ports. This underlines how limited alternative export routes are for several major producers in the region.