The US-Iran war triggers an energy crisis. Can the US economy “get away with it”? JPMorgan speaks up to deny it.

Cailian Press April 7—(Editor: Huang Junzhi) Many investors apparently believe that the U.S. economy can fully withstand the energy shock triggered by war, but that is not the case. This is one of the latest views expressed by Michael Cembalest, Chairman of Markets and Investment Strategy at JPMorgan Asset Management.

Cembalest has many followers on Wall Street. In the past, his reports explored major issues such as the feasibility of large tech companies’ ambitious artificial intelligence buildout goals, while more recently he has focused his attention on the global energy market. He believes that one of the biggest misconceptions in the market about the Iran conflict is that the U.S. economy, to a large extent, will not be affected by a major shock to energy prices.

He stressed that although the United States is a net exporter of certain fuels, that does not mean that higher global energy costs caused by the Iran conflict will not deal a serious blow to its economy.

In his latest published report, Cembalest said that although the U.S. has successfully significantly reduced Iran’s missile and drone strikes, all the news headlines about the conflict reminded him of the plot of Stephen King’s novel Pet Sematary.

As he described it, the book tells a story “in which the protagonist, with good intentions, goes to a small town called Jerusalem to fight evil. However, things don’t go as planned, and the town is ultimately flattened, with all the residents turning into vampires—everyone’s situation is worse than when they started.”

After that, Cembalest delved into “what impact a surge in energy prices caused by war would have on the U.S. economy.”

“Most of the idea that the U.S. will not be affected by the market consequences of a closure of the Strait of Hormuz is largely wrong. The U.S. fossil-fuel independence is not as capable of functioning as an economic firewall as you might think.” he added.

Crucially, Cembalest’s argument supporting this conclusion is not based on theory or speculation, but on what has actually happened in the market.

Despite major media outlets warning about the risks that a closure of the Strait of Hormuz would bring to many European and Asian countries, many refined petroleum product prices in the U.S. market—and even the price of crude oil itself—have seen even larger increases.

“Restarting Hormuz” challenge

President Trump has repeatedly insisted that Iran must immediately reopen the Strait of Hormuz, or it will face serious military consequences. The latest deadline set by Trump expires on Tuesday evening—but so far, the main takeaway from Iran’s efforts to turn a global energy chokepoint into a “toll road” is that this strategy has worked unexpectedly well.

To support this, Cembalest cited remarks from Middle East economist Dina Esfandiary: that Iran has already realized that “holding” the global economy hostage is far cheaper and easier than it had expected.

Cembalest pointed out that even if the strait is reopened tomorrow, production in the region would still take some time to recover to pre-conflict levels. In addition, there are some factors that could drive an escalation of the situation—for example, interceptor missiles from the U.S., Israel, and Gulf states may soon run out.

He further explained that Iran’s significant progress in drone manufacturing capacity has enhanced the country’s ability to wage asymmetric warfare. The chart below clearly shows the gap.

“Although drone payloads are much smaller, just a small number of payloads can cause huge damage to expensive aircraft, ships, and radar systems. But on the other hand, the unit cost of drones is higher than the payloads carried by many missile systems,” he wrote.