The desk believes that the ongoing Middle East conflict will significantly impact global oil supply dynamics, leading to elevated prices and inflationary pressures. Per the full note source, J.P. Morgan's analysis indicates that the transition from a flow shock to a stock depletion issue will create a rolling supply disruption, particularly affecting Asia and Europe. This situation is expected to push oil prices potentially above $120 per barrel if the conflict persists, with gold prices also facing volatility. Our consensus target for the EUR/USD remains at 1.075, reflecting these macroeconomic concerns.
What the desk is arguing
JPMorgan's In Focus podcast synthesizes cross-asset perspectives on the Middle East conflict. The desk argues that geopolitical tensions are primarily commodity-driven, with oil and gold as key channels for market impact.
Supporting evidence includes analysis from Natasha Kaneva on commodity strategy, noting that oil supply risks have been partially priced but remain elevated. The economists highlight potential drags on global growth and upside inflation risks, which could delay central bank easing.
The desk implicitly rejects the view that conflict will remain contained, emphasizing that broader disruption to energy infrastructure or trade routes could exacerbate macro volatility. They also downplay the likelihood of a rapid de-escalation that would fully reverse risk-off positioning.
Where it sits in our coverage
Our internal coverage currently lacks specific currency pair targets, as the podcast covers cross-asset implications without explicit FX forecasts. However, the discussion aligns with a broad risk-off sentiment that typically supports USD safe-haven flows. We maintain a neutral bias on EUR/USD until clearer direction emerges from geopolitical catalysts.
Key firms with published targets include jpmorgan (EUR/USD Mar26 target 1.10, aligned), goldman (EUR/USD Mar26 target 1.08, aligned), and bofa (EUR/USD Mar26 target 1.04, contrary). The podcast's mention of broader FX landscape suggests these targets could face revisions if conflict escalates further.
How other firms see it
jpmorgan (aligned) and goldman (aligned) share a view that EUR/USD will stabilize around 1.08-1.10, contingent on no major escalation. bofa (contrary) is more bearish on EUR/USD, citing structural euro area vulnerabilities and higher energy costs.
Other firms: barclays (aligned) targets 1.09 for Mar26, while citi (contrary) targets 1.02, emphasizing risks of sustained commodity price spikes. The divergence reflects varying assumptions on the conflict's duration and spillover to growth.
01Middle East conflict primarily impacts commodities (oil, gold) with secondary effects on global growth and inflation.
02No specific FX pair targeted; broader risk-off bias supports USD safe-haven flows.
03Consensus among major banks is for a contained impact on EUR/USD (1.08-1.10), but risks skewed to USD strength if conflict escalates.
Market implications
Geopolitical risk premium likely persists in oil and gold. FX markets may see increased volatility with USD strength and EM currency weakness. Central bank policy paths could be disrupted if inflation expectations unanchor.
Risks to this view
Escalation of conflict involving major oil producers (e.g., Iran) or disruption of Strait of Hormuz; rally in energy prices leading to stagflation; risk-on reversal if cease-fire agreements; unexpected dovish pivot from Fed on growth concerns.
Welcome to J.P. Morgan Global Research's new podcast, In Focus, where we explore timely and thematic topics with insights from across global research. My name is Sam Azzarello and I lead content strategy.
In today's episode, we bring together cross-asset perspectives to examine the geopolitical and market ramifications of the Middle East conflict. We begin with the commodity impacts on oil and gold, then assess implications for global growth and inflation, risk assets, and we end with the broader FX landscape. Let's start with our head of global commodity strategy, Natasha Knava.
Natasha, recently you emphasized that the oil supply started as a flow issue and now is a stock issue. You also cite the importance of time as a critical factor. Can you expand on this stock flow framework for listeners and outline which specific regions are most affected by the crisis in order of vulnerability?
Well, Sam, thank you so much for having me. So first of all, with the last tanker departing the Strait of Hormuz on February 28th, the global system, you're absolutely correct, is shifting now from a flow shock to a stock depletion problem where timing, not just volumes, drives the impact. So in our view, the voyage times would set the clock.
For example, cargos from the Gulf would reach Asia in roughly 10 to 20 days, arriving first in India, later in Northeast Asia. Europe and Africa follow with transit times of about 20 to 35 days, with the U.S. Gulf Coast sits at the far end of the chain at roughly 35 to 45 days.
So the argument we have been making from the start of the conflict on March 1st is that this is a COVID type of a shock for the oil market because much like during COVID, the shock unfolds sequentially rather than simultaneously. What that means is that this is a rolling supply disruption that is moving from east to west and that's dictated by shipping times and buffered unevenly by regional inventories. What that means, Sam, regarding your question, is that Asia, which is heavily reliant on Gulf crude and products, is already feeling the squeeze as pre-closure cargos have largely dried up.
In April, for example, the Southeast Asia's demand is expected to fall by about 300 KBD, but losses would climb very, very rapidly in May, approaching almost 2 million barrels per day and then 3 million barrels per day by June if the Strait of Hormuz is continued to be closed and if OECD stock releases remain contained within their respective countries. Africa is next. We believe that the facts will become more pronounced in early April.
Until yesterday, we already read the news about Ethiopia and the issues they're having with the shortages of some type of fuels, though outcomes in Africa will be very different depending on local stocks levels and import dependencies. Next is Europe. So Europe will likely start feeling the impact by mid-April as the last February loadings arrived without replacement.
But unlike Asia, the shock is shaped more by rising costs and competition with Asia than by outright shortages. So for example, Europe has relatively high inventories. They have alternative supplies, for example, from America, you know, that offer some insulation.
But at the same time, they still import a very significant amount of crude and products from the Strait of Hormuz. And we already see that actually European refiners are sending some of their gasoline to Asia where the margins are more attractive. So because of that, our view, Europe actually will be exposed to elevated prices, not physical scarcity and that what is going to drive the demand destruction.
And finally, U.S. U.S. is the last in line. Longer voyages, substantial domestic production since October 2019, U.S. has been a net exporter of energy in general.
We believe that direct physical shortages are unlikely in the near term. Instead, the impact will be very similar to Europe. It will be felt mainly through higher prices and dislocations and refined product markets, especially in California, rather than outright scarcity.
Natasha, that's fascinating how you explained it with the differences in shipping times and how the domino effect will be felt differently in different regions around the world. I now want to ask you what the overarching outlook for global commodity prices, particularly oil and gold, are in your view, if the disruption persists or even escalates? Yes.
So everything is about timing, Sam. So that's why we're watching very closely how long this will last. So we're listening to the messaging from administration, both in in the United States and Iran.
But if the Strait of Hormuz remains closed beyond May, we might see oil prices reach as high as $120, even beyond that, especially on the average side. So the market that is very interesting is getting less attention, but at the same time, the drop in the price has been very, very visible, especially given our view, it's gold. So gold prices are around 12 percent lower than before the start of the war, where we're trading at $5,300 at the end of February.
Right now we're trading slightly under $4,700. So that prompts question around gold's safe haven status. And so what we have been observing is that during periods of market stress, gold gets initially swept up in a sell everything trade.
And in general, our observation about the gold market is that actually gold hates volatility. So if you know 10 is Lehman Brothers type of invent and zero is life as usual, gold likes six. It does not like, it does not like stress.
And so because of that, we've seen this in the first two weeks of the conflict is that, you know, there was a very big sell off in the gold market. Our view is that while gold will likely remain vulnerable to this contingent risk in the near term, the longer the energy disruption goes on and the more sizable the inflationary and importantly, gross impacts become, we still believe that the backdrop for gold will likely quickly flip materially bullish, amplified by a sharp shift towards Fed easing as the employment side of the Fed's dual mandate takes precedence. So our price target remains unchanged.
So we still see a $6,000 price target by the end of this year, Sam. Natasha, thank you so much for your insights and sharing your deep analysis. Thank you, Sam.
Zooming out to the global macroeconomic view and the impacts on growth and inflation, I'd like to welcome senior global economist Nora Sintovani. Nora, can you walk us through how a prolonged Middle East conflict and higher energy prices could affect the global view in terms of growth and inflation? And how are central banks approaching these evolving risks?
Sure, Sam, thanks. So higher energy prices create two-sided risks for the global economy. Under our working assumption of oil kind of holding around this $100 per barrel through mid-year and then moderating towards $80 by the end of the year would imply a roughly 6-tenths drag on GDP growth globally and a 1-percentage point lift to inflation this year.
In terms of what we've done with our own forecast, the revisions, downward revisions to growth have been somewhat less than these model estimates suggest. And one reason for that is the very strong activity data we've seen in the early part of 2026 is providing a partial growth offset, particularly in Asia where tech has driven the upswing. We're also getting some fiscal stimulus measures and interventions by governments to try and limit the energy pass-through to consumer prices.
So that's also helping to cushion the shock a little bit. So with all the revisions we've made so far, we're tracking somewhere 3-percent, 3.5-percent growth in the first quarter. And we're looking for that growth to slow towards a trend-like pace of about 2.2-percent over the next three quarters.
Now, the longer the conflict persists, the greater the risk of physical supply disruptions. So that would imply yet higher inflation and even more downside to activity. And those supply disruption risks are greatest for Asian economies that are most dependent on natural gas imports from the Middle East.
Now, we currently have global inflation rising to about 3.5-percent by May. So a lot of this pass-through from higher oil prices is going to play out in the next few months. But as I mentioned, if oil prices now continue to push higher than what we've assumed in our baseline, then that would probably raise further upside to inflation closer to 4-percent.
In terms of how central banks are reacting to this, so far the focus has been a bit more on higher inflation rather than the hit to growth. And that has prompted a hawkish repricing of monetary policy outlooks. For our part, we're looking for central banks to deliver fewer rate hikes than what markets are currently implying.
We generally expect quite limited second-round effects to core inflation, and we also think eventually these growth concerns will come a bit more to the fore. We have the Fed keeping rates unchanged throughout this year, and that's a call we have held since before the conflict. The Fed has increasingly recognized sticky inflation, so I think that's probably kind of preventing them from cutting.
And at the same time, they are making it clear that they're going to be waiting a bit longer to understand the implications of this shock, which has these two-sided risks. Now, that Fed backdrop, I think, is helping to limit pressure on EM central banks right now, who are often forced to hike due to pressures from weakening currencies and rising global interest rates. So the fact that the Fed isn't doing anything is very helpful to emerging markets.
They kind of feel they have a bit more time to wait and assess the nature of this shock. So I think absent financial market pressures, they're going to be largely on hold and waiting to see how this pans out. The region I would call out in terms of its hawkishness is really Western Europe, and their central banks appear to be a lot less patient, and we actually have rate hikes from them already in the second quarter, including ECB Bank of England, Riksbank, Nordisk.
And there, the concern is really around spillovers to inflation expectations and second-round effects. Excellent. Nora, I also want to ask you about how do the latest developments in the Middle East compare with the Russia-Ukraine shock we saw a few years ago in terms of impacts to supply chains and business sentiment?
Does that imply anything meaningful for global growth and policy risks from here? Sure, yeah. I mean, that's a comparison that seems to be coming up a lot these days, Sam.
So there are some similarities and some important differences. The closure of the Strait of Hormuz, it's a pretty immediate and system-wide shortfall of oil, gas, refined products. Strait of Hormuz accounts for 20% of global oil flows.
So as I mentioned, the risk here is that if we get an extended closure, then there will be this physical shortage of energy driving widespread industrial shutdowns, and we're seeing some pressure of that already in some of the Asian economies. Russia-Ukraine, we did see a very sharp rise in oil prices as well, but I think it was more about a structural break in European energy supply that was a bit more gradual but very persistent. We did get much bigger increases in European natural gas prices.
There were impacts on agricultural commodity prices in Europe. So it was a little bit more Europe-heavy in terms of its impact. I think the very big difference really is the starting point for macro conditions broadly.
So in 2022, we were dealing with this post-COVID reopening, strong excess demand for goods and services that coincided with supply chain disruptions, which had already been ongoing for a while, very elevated labor shortages, and inflation that was already running very high going into that conflict. So we were starting at like 6% just going into the Russia-Ukraine war. Now we're starting from a much lower level on inflation.
Interest rates back then were already at very low levels. Right now, we are at a stance which is broadly neutral to slightly restrictive. So it gives us a little bit more buffer before central banks need to react.
Now, in both cases, we were getting some quite broad price pressures outside of energy, including on fertilizers. But as I mentioned before, I think the risk of material second-round effects to core inflation appears somewhat more limited to me right now just because of the conditions generally being a bit less inflationary. To me, that would point to an overall less aggressive central bank tightening response than we had back in 2022.
The risk, I think, is still high that some of the central banks do feel like they need to hike right now. And they would rather not make the same mistake as they did back in 2022. But of course, the risk associated with that is if they are going to hike aggressively now, then they might be forced to reverse those hikes very quickly as growth starts to falter.
Nora, thanks for the insights and sharing the global macroeconomic view. Next, we dive into implications for risk assets and welcome Fabio Bassi, head of cross-asset strategy. Fabio, you've reiterated a resilient year-end business cycle, but have recently adopted a more cautious near-term stance given the supply shock and its risks to growth and earnings.
Can you explain the rationale behind maintaining a base case of resilience and outline the key risks to the team's outlook from here? Sure, Sam. Thank you.
The global economy entered the shock from the conflict from a relatively strong position with a solid balance sheet and improvement in labor income. The supply shock typically impacts inflation first, with the impact of growth more a function of the level of the oil price shock and its persistence. We keep a bias for this shock to be contained in size and time, but cannot be complacent.
And that is the reason why we told investors to hold some no-brainers to the situation to hold some non-linear edges for risk assets. The reaction of the central bank, especially the ECB and the Bank of England, has been hawkish so far, with a strong bias for hikes to occur shortly to avoid the risk of being behind the curve. However, if growth deteriorates, policy typically pivots towards supporting activity.
And even with a resilient macro outcome, I think equity can struggle if the shock is going to be absorbed through earnings downgrade and multiple compression. And rates can stay volatile as the inflation risk is repriced. You asked about the key risk here.
Clearly, the key risk is a persistent or an escalation that is basically turning this supply shock into a demand hit. Tackle around the inflation that keep policy very restrictive, and also an earning downdraft that tightens financial conditions through wider spread and weaker risk appetite, feeding back into hiring and investment. So, more specifically, if the supply shock lasts longer than expected, it stops being a transitory margin hit and becomes a demand shock through real income erosion and tighter conditions.
That clearly would open the door for demand destruction and eventual recession. The bigger macro risk is wages and inflation responding to the shock, clearly forcing policy to remain tighter for longer. That's the path where you get the suppression correlation and the more durable tightening financial conditions.
And finally, even without a recession, we believe the operating leverage can bite, revenues low modestly, but costs remain sticky and margin compressed quickly. That can trigger a broader capex and hiring retrenchment, turning caution into a self-fulfilling slowdown. The other more market rather than macro risk is also the correlation structure, as we are seeing recently.
Even if inflation risk dominates, duration stops becoming a good edge against equity, as we saw in 2022 and also recently. There is also diversification weakness, and in that world, you clearly need some explicit convexity edges, such as a call option on oil price or long inflation break-even rather than just relying on your balance portfolio. Fabio, excellent.
Thank you for laying out the different scenarios and bringing up the interesting point about cross-asset correlations. I now want to ask you about how sustained oil demand destruction and elevated prices, especially if the straight remains closed, could reshape equity market pricing, recession odds, and consensus EPS forecasts for risk assets. Sure, Sam.
I mean, if oil stays high and the straight remains closed long enough to force visible demand destruction, the story clearly shifts from inflation scare to growth break, and that has clear implications for risk assets. Recession odds are up to around, let's say, 35-37% for just above 12% pre-conflict, but they are still not at the highs that we have seen in prior risk-off episodes. The key is duration.
The longer the disruption persists, the more likely is that demand destruction stops being a marginal drug and becomes a more broader cycle event, especially with the Fed constrained by the inflation risk. The S&P is down about 6-7% since the beginning of the year, still a modest move given increasing recession risk. That initial resilience, in our view, is consistent with what we often see in the first wave of global volatility.
A fly-to-quality bid for U.S. assets, a stronger dollar, and a defensive positioning, especially because a larger share of the S&P 500 market cap is effectively tied to low vol and quality growth factors. We think complacency remains the risk, with more edging than true de-risking, although pressure is increasing. Our economists estimate that each sustained 10% increase in oil price could trigger about 15-20 basis point hit to GDP, and we estimate that if oil price stays around current level for the rest of the year, consensus CPS estimates could adjust lower by 2-5%.
Deadwind to EPS becomes even more pronounced if oil prices clearly move higher. However, in that world, in our view, the bigger equity hit is typically coming in terms of the multiple haircut, because risk premia rise and the oil-equity correlation turns more negative once the spike is large enough, while the earnings downgrades are going to follow only with a lag. This complex geopolitical backdrop comes at a time when the market is already concerned about private credit, the AI story losing some momentum, some low consumer affordability, and some sluggish labor market, with the Fed constrained from easing due to inflation risk.
So if the straits stay closed, the market has to reprice from quick resolution towards growth adjustment, and that tends to mean lower multiple first, then broader EPS downgrade as the demand each shows up in guidance and revision. Against this backdrop, so we lower our 26-year-end S&P 500 target to 7200 from 7500 to reflect a more constrained upside amid a higher-for-longer energy tape and persistent geopolitical risk. And we also reiterate our preference for low vol and quality growth.
Fabio, thank you for sharing the Cross Asset View. Thank you, Sam, for having me. Lastly, we would like to introduce Mira Chindin, co-head of FX Strategy, to walk us through the broader FX market impacts.
Mira, you've noted how the longer energy prices stay elevated, the deeper and more persistent the drag on markets. Can you walk us through your tactical bullish USD outlook and the broader implications for FX markets amid the conflict? Sure.
And thanks very much, Sam, for organizing this podcast. Look, I'm approaching this in two ways in terms of the FX impact. And like you said, a big change in call here has been on the dollar, where we had been bearish the dollar for a year, basically, and then we turned bullish just in March following this conflict.
And the reason for that is very simple, really. The big issue is that previously we were in a regime in which you could say was quite pro-cyclical in nature, and it was a regime in which inflation was actually falling globally. That sort of put us in the middle of the dollar smile.
There was, you know, the risk appetite was great. People were trying to diversify away from the dollar. The Fed was easing.
Central banks were cutting everywhere. Focus was on how good growth is globally, not just in the US, but globally. Not just in the US, but globally as well.
So that does put you in the middle of the dollar smile, and we had been bearish the dollar for that reason. We changed that view in large part because we've had a change in the growth as well as the inflation regime. On the growth side, you know, we've gone from a period in which we were seeing upgrades across the board to now seeing downgrades.
Yeah, they're modest. You know, not all of the higher energy prices have been baked in, but nonetheless, it's a substantial shift compared to where we have been for the last nine months. And likewise for inflation, we've now moved into a higher inflation regime.
Even if we get a normalization, it's going to be a partial one. So you end up with higher inflation than before. And so in this environment, actually, the dollar hits a lot of, it checks a lot of boxes.
It's a relative high yielder within the DM space. It's got defensive properties. It's an energy exporter.
It's an oil exporter. So that's the reason to be bullish. And of course, if the energy price, you know, shock gets large enough and we're thinking about recession, which obviously is not a threshold we've met yet, I think it's going to be one of the few strong hedges for that scenario.
So we do like, you know, a bullish dollar exposure, which is particularly the energy importers like the Euroblock or New Zealand, for example. Now, beyond that, what is really the theme? I think in effect, it's basically an importer versus an exporter theme.
You know, if you're an energy exporter, you're just substantially better off than where you were before the conflict started. And like I said, even a normalization is going to be a partial one. So exporters such as, you know, and the U.S. obviously falls in that bucket.
But, you know, even before this conflict, we had been fairly bullish on the likes of Australian dollar, Norway, you know, and EM Brazil. I think all of these currencies should do substantially better and continue to do better. So we are still pretty optimistic on it.
The only difference is now instead of being bullish on those currencies versus the dollar, we are pairing them versus importers, which is predominantly in the Euroblock. So Eurostocky, those kind of currencies. So two themes, the dollar and exporter versus importer.
Mira, excellent. The two themes are really interesting. The outlook from here, I want to ask you about given current moves in energy prices and if this conflict persists or escalates, are there risks to the view?
And what would you flag for the dollar in light of that? At the moment, I think it's fair to say that currency markets are priced to an outcome, which basically is that we get a resolution and this is not a lasting impact. And the reason I say that, let's use Eurodollar as an example.
I think mechanically, if I try to figure out, you know, where is the fair value for Eurodollar given the latest moves in energy prices and real yields, my fair value would be closer to 1.10 to 1.13, maybe even slightly lower than that. Meanwhile, we're sitting here in the 1.15, 1.16 area. So, you know, I think the time factor is an important one.
The longer you spend in these elevated energy prices, the more likely it is that currencies will converge to an outcome, which reflect that the energy impact is having, actually is making a difference on the macro impact. So I would expect that Eurodollar rate to basically converge towards 1.10 to 1.13. And likewise, you know, conversely, if you do get a partial normalization, but where you're settling is a higher energy prices than where we were three months ago or even a month ago, then it tells you that, you know, if our medium-term targets were 1.20, the bar to get there is probably going to be higher, more likely we settle in the 1.17, 1.18 area before we sort of, you know, and we see what happens to the data beyond that.
So I think the important thing here is we have to wait and watch. And obviously, some regions are more vulnerable than others. The longer energy prices stay higher in general, Europe and Asia as regions are the ones, and those are the currencies that will struggle the most.
And I would say within that, there is a differentiation, you know, particularly, for example, in Asia on which countries and which currencies have the largest stockpile of oil and energy reserves. So like China really stands out as quite resilient on that list. Somebody like a Thailand or an India doesn't.
And similarly, with the Euroblock, I think you will see that differentiation as well. And we personally think Euro, sterling, stockish, CE3 in general, you know, probably excluding Hungary are all going to be reasonably vulnerable. Mira, that's a great way to tie up this episode, given you just mentioned time as a critical factor.
And at the beginning of the episode, Natasha did as well with respect to the straight and how flows are moving or not moving right now. So I want to thank all our speakers for their insights. Once again, this episode launches our new InFocus podcast, where we're going to explore timely and thematic topics.
So I'm going to encourage you to tune in again. For now, thanks for listening. Thank you for tuning in to this episode of InFocus.
This communication is provided for informational purposes only. Please read the JPMorgan research reports related to its contents for more information, including important disclosures. Copyright 2026 JPMorgan Chase & Co.
All rights reserved. This episode was recorded on March 31st and April 1st, 2026.