Two of the world's core crude oil transport routes are under simultaneous pressure. A new research report from JP Morgan calculates that the duration of the conflict is the key variable determining oil prices, suggesting that if supply disruptions last for one month, Brent crude will stabilize at $94, while a three-month disruption could push prices to $114.
The escalating situation in the Middle East is once again raising global oil supply risks. JP Morgan believes that with both the Strait of Hormuz and the Red Sea—two critical energy corridors—facing simultaneous threats, the market's buffer capacity is rapidly narrowing. The duration of the conflict is becoming the decisive factor for oil price direction.
Key Factor: Conflict Duration
In their latest report, a team led by Natasha Kaneva, JP Morgan's Global Head of Commodities Research, stated that if the conflict lasts only one month, the average monthly price of Brent crude could remain around $94 per barrel. However, as inventory buffers continue to deplete, each additional month of supply disruption could drive the average monthly Brent price up by approximately $7 to $8. The team projects that if the supply disruption persists for three months, the average monthly Brent price could rise to about $114 per barrel.
The report notes that the current oil price increase still includes a certain geopolitical risk premium. On Thursday, Brent crude futures surged over 7%, breaking through the $100 per barrel mark for the first time in two months, triggered by Yemen's Houthi group announcing attacks on two Saudi oil tankers, which heightened concerns over shipping safety in the Red Sea.
Global Shipping Routes Under Pressure
The core of this oil market turbulence lies in the simultaneous risk to two of the world's most important crude oil transport routes. The Strait of Hormuz is one of the most critical global oil shipping chokepoints, with about one-fifth of the world's oil supply passing through the region before the conflict. Meanwhile, the Bab el-Mandeb Strait at the southern end of the Red Sea is also a vital route connecting the Middle East to Asian markets. JP Morgan points out that crude oil transit through the Strait of Hormuz remains significantly below pre-conflict levels. Furthermore, Saudi Arabia had shifted a large portion of its exports to the Red Sea route to circumvent the risk of a Strait of Hormuz closure, but this alternative route is now also threatened by the Houthi attacks.
Supply and Demand Balance
The report states that the oil market's previous stability heavily relied on falling demand offsetting supply losses. Since the start of the conflict, global oil supply has decreased by about 11.1 million barrels per day, while demand has fallen by about 5.1 million barrels per day, offsetting roughly 46% of the supply gap. However, JP Morgan warns that this balance is difficult to sustain over the long term. "Each additional month of supply disruption requires releasing more oil from the dwindling available inventory," Kaneva's team stated.
Impact on Consumers
Energy supply risks could also further transmit to the consumer end. JP Morgan estimates that if the supply disruption lasts one month, the average US gasoline price could rise to about $4.20 per gallon; if it lasts two months, gasoline prices could potentially break above $4.50 per gallon. According to data from the American Automobile Association (AAA), the current average US gasoline price is around $4.10 per gallon.
Market Sentiment
Meanwhile, Daniela Hathorn, Senior Market Analyst at Capital.com, stated that disruptions to Red Sea shipping and tensions in the Strait of Hormuz are re-inflating the "geopolitical risk premium" in the crude oil market. She noted that attacks on commercial vessels are further exacerbating market concerns about global trade and energy security. "Geopolitical risks are unlikely to fade in the short term, energy markets will remain tense, and inflationary pressures will persist."
Giovanni Staunovo, a Commodity Strategist at UBS Global Wealth Management, suggested that the market may be overestimating the speed of supply recovery in the Middle East. "The production recovery process may be slower than the market expects, as more vessels need to enter the region," Staunovo said.
Long-Term Outlook
Despite the increased supply risks, institutions believe the potential for sustained long-term oil price increases is limited. UBS expects Brent crude to fall back to $85 per barrel by the end of the year. JP Morgan also noted that if the conflict de-escalates quickly, prices could fall due to weak demand and inventory adjustments. However, if the Strait of Hormuz and Red Sea routes continue to be disrupted, the oil market will face greater supply pressure.
Currently, the market's focus has shifted from "whether supply has been affected" to "how long the supply disruption will last." For the global energy market, the trajectory of the conflict in the coming months will directly determine whether oil prices move into a higher range.
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