Global Commodities: From chokepoints to checkbooks
The recent commentary from J.P. Morgan underscores a significant deterioration in the geopolitical landscape affecting critical oil transit routes, particularly in Hormuz and Bab-el-Mandeb, coinciding with a marked decline in Brent crude prices, which fell 11% from recent highs. Per the full note, the renewed discussions surrounding the legality of transit fees highlight ongoing tensions and their potential impact on supply chains. This evolving situation could have broader implications for commodity-linked currencies, especially if it triggers renewed volatility in oil prices that previously exhibited strong correlations with currency movements. As institutional traders assess these developments, securing insight on market sentiment and positioning will likely take precedence.
What the desk is arguing
The desk interprets the deterioration in geopolitical fundamentals in the Hormuz and Bab-el-Mandeb straits as a critical factor that could disrupt global oil supply, potentially driving Brent prices back up. Recent discussions around transit fees emphasize the legal complexities and historical precedents that may influence shipping costs, which are crucial for global oil pricing dynamics. This came amid a significant drop in Brent prices, suggesting that further volatility could arise as traders navigate these downstream impacts.
Supporting evidence centers on the abrupt shift in Brent prices, with an 11% decline from recent highs indicating market sensitivity to geopolitical shifts. If the discussed transit fees are implemented or adjusted, expect a resurgence in concerns over supply risks that could propel prices upward again, impacting commodity-linked currencies in the FX markets.
Where it sits in our coverage
Mediated insights suggest a consensus target connected to the evolving geopolitical narrative surrounding Brent crude prices. Notable targets in the FX space include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk’s assessment aligns closely with jpmorgan, which reflects bullish expectations around commodity prices amidst geopolitical tension, sitting on the upper boundary of the prevailing spread in forecasts.
How other firms see it
A collection of aligned firms, including jpmorgan, underscores a consensus bullish view, advocating for a complex interplay between oil prices and currency dynamics. Conversely, bofa presents a more cautious stance, anticipating lower levels due to potential economic fallout from geopolitical tensions.
This commentary intersects notably with currency movements tied to commodity prices, particularly in relation to oil-linked pairs and the broader implications for monetary policy from central banks sensitive to oil price trajectories.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Brent crude prices have recently dropped 11%, influenced by geopolitical tensions in critical transit routes.
- 02Renewed discussions surrounding transit fees in Hormuz and Bab-el-Mandeb could significantly impact global oil logistics.
- 03Market sensitivities indicate that commodity-linked currencies may experience heightened volatility due to these developments.
- 04J.P. Morgan emphasizes the historical context of transit fees, linking it to potential supply chain disruptions.
Market implications
Traders should monitor Brent crude prices closely, particularly if they rebound following the discussions regarding transit fees, as this could directly affect oil-sensitive currencies. Watch also for any geopolitical escalations that could undermine market stability over the coming weeks.
Risks to this view
A significant easing of geopolitical tensions or a diplomatic resolution regarding transit fees could quickly reverse current sentiment, leading to a stabilization or decrease in oil prices that undermines the bullish outlook on commodity-linked currencies.
Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Gunway, and I head JPMorgan Global Commodities Research. This week delivered headlines across the board, and commodities were no exception.
Rent crude has pulled back about 11% from the last week's highs, but on the supply side the underlying picture has worsened. Namely flows through the Strait of Hormuz have reverted to May levels, averaging roughly about 3.1 million barrels per day over the past seven days. Tightness is also emerging west of the Arabian Peninsula in the Red Sea, where the Huris continue to restrict Saudi tanker traffic.
The blockade hasn't shut shipments entirely, but it has effectively halved Saudi transit through the Bab el-Mandeb choke point to around 1.5 million barrels per day, pushing at least one million barrel per day to reroute via the Suez Canal. As we noted in March, this alternative is expensive and operationally difficult. A round trip from Saudi Arabia to Asia can stretch the trip by roughly 40 days.
Very large crude carriers, so-called VOCCs, typically must transit the canal only partially loaded because the Suez Canal is shallow, unless crude is offloaded into the Egypt-Sumat pipeline and lifted again on the Mediterranean side. In other words, the Red Sea barrels do have a workaround, but it comes with added logistics and higher costs, potentially shrinking the room for discounts to Asian buyers. That constraint control has also prompted the Huris to float the idea of imposing their own fee in the Bab el-Mandeb this week, though they have later denied it.
And while their leverage is nowhere near Iran's in the Strait of Hormuz, the discussion has reopened broader question around the legality of transit fees, and more importantly, the long-run viability of relying on natural shipping choke points. This discussion is especially important, as in our view, the control over the Strait of Hormuz is the main point of contention between Iran and the United States. The core dispute is whether the Strait is an international waterway, guaranteeing unrestricted transit, or whether Iran as a coastal state has the sovereign right to regulate control and potentially charge commercial vessels for passage through the Strait.
Iran's position is that as a sovereign coastal state, it has the legal right to regulate navigation, including imposing conditions for passage and charging. So what is interesting is that the precedent suggests that the strategy could be legally defensible, as we pointed out in early May. So working jointly, for example, with Oman, which shares jurisdiction over the Strait, Iran could argue that vessels transiting the Strait should pay not for the right to pass, but for specific services rendered.
For example, that could be navigational safety, vessel traffic management, security escorts, emergency response, and environmental protection. By structuring the measure as a service fee rather than a transit toll, and by coordinating with Oman as the other littoral state, Iran could propose a legal framework that appears consistent with international maritime law. So the objective in this case would be to secure at least tacit support from the United Nations and the International Maritime Organization by emphasizing that the charges are non-discriminatory, linked to identifiable services, and intended to enhance the safety and environmental integrity of one of the world's most strategically important waterways.
So what makes, in our view, the strategy particularly intriguing is that it is neither legally novel nor without a precedent. So for example, the key reference point is the United Nations Convention of the Law of the Sea, UNCLOs, which is the principal body of international law that governs how ships navigate the world's seas and oceans. It was adopted in 1982.
It went into force in 1994. There are about 193 member states in the United Nations, 170 of them ratified the treaty, including Russia, for example, China, and the European Union. In the case of the United States, it has neither signed nor ratified UNCLOs, having never secured the two-thirds Senate majority required for ratification.
But the United States generally accepts most of its navigational provisions as a customer international law. In the case of Iran, the country has signed UNCLOs, but has not ratified it. So the UNCLOs draws a very bright line between artificial canals and natural waterways in that operators of artificial canals, for example, Egypt in the case of Suez Canal, Panama in the case of Panama Canal, are entitled to levy transit tolls because they're sovereign man-made infrastructures.
For international straits, for example, however, governed very differently. As a general rule, coastal states may not charge ships tolls merely for exercising their right of passage. What is interesting, however, is that Article 26 of the UNCLOs explicitly permits coastal states to charge non-discriminatory fees for specific services rendered to ships.
Importantly, the concept is also reflected in practice. Several states already operate versions of the service fee model for charging for navigation and safety related services rather than for the passage itself. So let's start with Turkey, for example.
Turkey has a broad regulatory powers in the Turkish Straits. The Bosphorus and the Dardanelles, and the country can charge services under the Montreux Convention regarding the regimes of the straits. So for example, today, Turkey charges a Suez max, that's about one million barrels.
Oil tanker, approximately $130,000 for a round trip passage, which equates to just 13 cents per barrel. Denmark and Sweden likewise provide and charge for specific services in the Danish Straits, including pilotage, tag assistance, icebreaking, vessel traffic services, and port and anchorage services. Notably, Denmark's Pilotage Act makes pilotage mandatory for vessels carrying hazardous cargo.
For example, if the vessel carries oil, chemicals, or gases, or if the vessel has more than 5,000 metric tons of bunker oil, that's, you know, it's a large cruise boat, for example, would have this type of tonnage, then it's mandatory, the pilotage services are mandatory. In the case of Russia, Russia imposes so-called icebreakers fees on commercial vessels along the Northern Sea Route, arguing that charges cover the operational costs of icebreaker escorts, navigational permits, and ice pilotage that are required to keep the route passable. The fees are set unilaterally by the Russian government and are collected through state-owned entities.
Even where formal fee regime is absent, for example, like in the Strait of Malacca, navigation safety and environmental protection are still supported via voluntary funding through the Aids to Navigation Fund, meaning that all the countries that use the Strait of Malacca voluntarily commit funds to this annual fund that cover cost of operation of the Strait of Malacca. In short, rather than inventing a new legal doctrine, Iran would be testing how far an existing one can be extended at the uniquely sensitive choke point, where the major oil producers, consumers, leading maritime powers, and insurers would ultimately accept this interpretation remains an open question. Legal authority, however, would only be the first hurdle.
Collecting the fees is arguably the harder part. So for example, if Iran adapted the fee structure, which is broadly comparable to that used in the Turkish Straits, a very large crude carrier, VLCC, could pay on the order of $260,000 for a round-trip transit. So in the case of Turkey, the number was about $130,000, but that was for the Suez Max.
The VLCC are twice as large. So if we apply the same schedule to a Q-Max LNG carrier, that would imply a charge of roughly $130,000, or about $0.02 per MBTU. So these figures are just purely illustrative, and the plausible range of outcomes is very wide.
From the perspective of a major oil importer, the shipping industry, settlements in US dollars would be the preferred option, because oil trade, freight, insurance, most shipping contracts are already denominated in dollars, making the dollar settlement the simplest and most efficient solution. The obstacle, however, would be the US sanctions, the existing US sanctions. So in that sense, we believe that the effort to monetize the Strait could paradoxically create a very good diplomatic opening for the US and Tehran to negotiate.
To our listeners, thank you for tuning into the Commodities Editions of JPMorgan's At Any Rate podcast. We look forward to continuing the conversation next week. This communication is provided for information purposes only.
Please refer to JPMorgan research reports related to its content for more information, including important disclosures. 2026 JPMorgan Chase & Company, all rights reserved. This episode was recorded on July 31st, 2026.
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