An unprecedented energy shock is unfolding—a supply-side "black hole" has opened, yet market price signals have not fully awakened. Rapid inventory drawdowns, the swift release of strategic reserves, and market optimism regarding a potential near-term reopening of the Strait have temporarily suppressed an oil price explosion. However, warnings from J.P. Morgan economists are clear and severe: once inventories fall to operational minimums, a non-linear price surge will be unavoidable, and the fate of global economic expansion will be rewritten at that moment.

This unprecedented supply shock has so far resulted in a seemingly "moderate" oil price increase. The blockade of the Strait of Hormuz has removed over 10% of global crude supply—an unprecedented figure. Yet, the Brent crude futures price for April is only about 43% higher than its average over the past year, appearing "restrained" compared to historic shocks like those of 1973-74 and 1979. This moderation is due to three buffer mechanisms acting simultaneously: large-scale releases from commercial inventories and strategic reserves, market optimism about the Strait reopening, and demand-side contraction. J.P. Morgan emphasizes that this "calm" is fragile; once inventories are depleted to operational minimums, prices face a risk of violent, non-linear increases.

J.P. Morgan outlines two distinct scenarios. The base scenario (60% probability) assumes the Strait reopens within weeks. Brent crude is projected to average $100 per barrel this quarter before gradually declining, stabilizing around $80 by Q4 2026. This energy price shock would lower cumulative global GDP levels by 0.6% and raise cumulative CPI by about 1%. Global growth would return to potential, employment would recover, the Fed would hold rates steady, and the ECB would move towards hiking. The adverse scenario (40% probability) assumes the blockade persists. Brent crude could surge to $150 per barrel between May and July, only partially retreating to around $110 by Q4. Model estimates suggest this would reduce cumulative global GDP by 1.6% and increase cumulative CPI by 2.2%. The global economy would face stagflation, with a significantly higher risk of recession, potentially becoming a more severe historical shock than 2022, closer in magnitude to 1979 or 1990. The probability of a global recession remains elevated at 35%, consistent with J.P. Morgan's assessment at the start of the year. Strong growth momentum early in the year had temporarily lowered recession risks, but the outbreak of conflict in the Middle East has introduced an equivalent countervailing threat.

J.P. Morgan's relatively optimistic base case rests on three pillars of underlying economic resilience. First, a robust engine of tech capital expenditure: against a backdrop of explosive growth in AI-related capital demand, global capex grew 5.1% over the past four quarters, with the US recording double-digit growth. J.P. Morgan's real-time capex forecasting model indicates annualized global capex growth tracking at 7% for Q1 2026. This demand surge is strongly boosting Asian exports, with manufacturing output in related regions jumping at an annualized rate of 12% in the three months to February. Second, recovering corporate profits are boosting confidence: global corporate profits grew 20% year-on-year in 2025, significantly lifting business sentiment from previous lows. J.P. Morgan expects global employment growth to rebound to an annualized 0.8% by mid-year as corporate caution recedes, with US non-farm payrolls averaging monthly gains above 100,000 again. Third, household consumption demonstrates smoothing capacity: despite a significant slowdown in employment growth, global consumer spending posted a solid 2% annualized growth last year, supported by fiscal aid, wealth effects, and credit channels. In the US, for example, households have maintained consumption by sharply reducing their personal savings rate, meaning a 5% CPI shock this quarter would need to be absorbed by further reductions in the savings rate.

History shows that aggressive central bank tightening during past energy price shocks often amplified economic downturns. During the 1970s oil crises, sharply higher policy rates in developed markets significantly contributed to global recessions. However, the current macroeconomic backdrop is distinctly different. Preceding this energy shock, wage growth and core inflation were already cooling, and employment growth was weak. Central banks had just concluded an easing cycle totaling 140 basis points of rate cuts, and the lagged effects of this monetary policy are gradually providing stimulus. Concurrently, financial conditions indices are at historically accommodative levels—such low financial stress during a major global energy shock is unprecedented. Under the base scenario, the Fed is expected to hold rates steady throughout the year, while the ECB leans towards hiking. Should the adverse scenario materialize, J.P. Morgan believes the Fed would not proactively hike rates solely in response to an oil price shock. However, the risk of a broader, synchronized shift towards tightening by major central banks would rise significantly, becoming a key variable determining financial conditions and overall economic resilience.

Global inflation has remained elevated at around 3% annualized over the past three years. The energy price shock is expected to push CPI growth further to 5% annualized this quarter, with full-year CPI inflation projected at 4%. However, the path of core inflation shows clear divergence: US core PCE inflation is expected to remain above 3% this year, while inflation in Canada and continental Europe is likely to converge towards the 2% policy target. Emerging markets overall are expected to exhibit "sticky, moderately elevated" inflation. This divergent landscape will directly lead to differing global monetary policy paths and provide important reference points for cross-asset relative value opportunities.

If the Strait of Hormuz blockade persists, J.P. Morgan identifies three key risk factors that could non-linearly amplify the shock. First, a non-linear spiral of price spikes and physical shortages: cumulative production losses from a prolonged blockade could trigger panic precautionary demand, driving oil prices well above the $150 forecast. Depletion of strategic stocks would further activate physical supply constraints, creating a vicious cycle where prices and shortages reinforce each other. Second, underlying behavioral fragility: the current global expansion features structural imbalances—strong tech demand contrasts with weak non-tech spending and employment, and household savings rates are already significantly depressed. If Brent crude reaches $150 or higher, it could push global CPI to a peak of 10% annualized within three months, severely dampening consumer confidence, threatening the nascent normalization of business sentiment, and triggering a secondary hit to household incomes via slowing employment demand. Third, the risk of central banks losing patience: policy responses will diverge initially. While the Fed is not expected to hike in direct reaction to an oil shock, a synchronized global shift towards tightening would have a decisive impact on financial conditions and overall resilience, potentially repeating policy missteps seen during the 2021-23 inflation control cycle.