JPMorgan Report: "U.S. Energy Independence" Is a Mirage! Refined oil prices have already risen above Europe

Bloomberg Finance APP News — Michael Sembalast, Head of Market and Investment Strategy at JPMorgan Asset & Wealth Management, directly addresses several common misconceptions about the market’s expectations of the Iran war in his latest report. He emphasizes that although the United States is a net exporter of certain fuels, this does not mean the U.S. economy can be completely immune to sharp increases in global energy prices.

Sembalast points out that U.S. fossil fuel independence is not, as many investors imagine, a solid economic firewall.

Misconception 1: U.S. energy independence can fully insulate against shocks

Many investors believe that, as a net energy exporter, the U.S. can largely avoid the impact of energy price shocks triggered by the Iran war. Sembalast explicitly refutes this view: “The idea that the U.S. is insulated from the consequences of the Strait of Hormuz closure is fundamentally wrong. U.S. fossil fuel independence is not the economic firewall you imagine.”

He stresses that even though the U.S. has a relatively high overall energy self-sufficiency, global energy price increases will still transmit to the U.S. economy through multiple channels, including higher refining costs, increased transportation expenses, and consumer spending pressures.

Misconception 2: U.S. refined oil and crude oil prices rise less than in other regions

Although the media focus on supply risks faced by European and Asian countries, actual data shows that in the U.S., many refined petroleum products and even crude oil prices have risen more significantly. Sembalast uses actual market price trends as evidence to demonstrate that energy shocks have indeed been transmitted to the U.S. market.

This phenomenon indicates that the interconnectedness of global energy markets far exceeds what the “net exporter” label alone can explain.

(American fuel continuous daily chart, source: Easy Forex)

Misconception 3: The Strait of Hormuz can be reopened quickly

Trump repeatedly set deadlines demanding Iran to immediately reopen the Strait of Hormuz, or face severe military consequences. However, Sembalast quotes economist Dina Esfandiary, who states that Iran has realized that using the global economy as a “hostage” to demand tolls is more effective and cheaper than expected.

Even if the strait reopens tomorrow, it will still take time for regional production to return to pre-war levels. Additionally, the U.S., Israel, and Gulf countries may have insufficient missile interception stockpiles, and Iran’s increased drone capabilities further enhance its asymmetric warfare ability.

The U.S. Navy currently has only four aging minesweepers, all scheduled for decommissioning, which will weaken future efforts to clear the strait.

Misconception 4: U.S. stocks have fully priced in war risks

Although U.S. stocks have so far experienced relatively mild declines, Sembalast warns that if the conflict drags on for more than a few months, it will have serious impacts on markets and the U.S. economy. Stephanie Link, Chief Investment Strategist at Tower Capital, also states that the current resilience of U.S. stocks is due to upward revisions in earnings expectations and a stable labor market, but prolonged conflict will pose greater problems.

Sembalast uses Stephen King’s novel “Salem’s Lot” as a metaphor for the current situation: initially entering with good intentions, but ultimately possibly causing higher costs for all parties involved.

Editor’s Summary

JPMorgan strategist Michael Sembalast systematically refutes several mainstream misconceptions about energy shocks from the Iran war in his latest report. The core conclusion is that U.S. fossil fuel independence is far from sufficient to fully insulate against global energy price increases, and the rise in domestic refined oil and crude oil prices already reflects this reality.

The reopening of the Strait of Hormuz faces multiple obstacles, with Iran’s asymmetric tactics and toll strategies demonstrating greater resilience. If the conflict becomes prolonged, the currently moderate correction in U.S. stocks may be only temporary, and the U.S. economy and global markets will face greater pressure.

Frequently Asked Questions

Q: Why is the idea that “U.S. energy independence can insulate against shocks” a misconception?

A: Although the U.S. is a net exporter of some fuels, global energy price increases still transmit through refining costs, transportation expenses, and consumer spending to the U.S. economy. JPMorgan strategist Sembalast points out that the rise in U.S. domestic refined oil and crude oil prices is actually greater than in many European and Asian countries, proving that shocks have indeed occurred.

Q: What practical difficulties does the reopening of the Strait of Hormuz face?

A: Even if reopened tomorrow, regional production recovery will still take time. U.S., Israeli, and Gulf missile interception stocks may be insufficient. Iran’s increased drone capabilities make asymmetric warfare more threatening, and these factors together increase the complexity of reopening navigation.

Q: Why is Iran’s “hostage” strategy considered effective?

A: Bloomberg Middle East economist notes that Iran has found that using the global economy as a hostage to demand tolls is cheaper and easier than expected. This strategy has already shown effects in the current conflict and may encourage Iran to maintain high-pressure tactics.

Q: Has the current performance of U.S. stocks fully reflected war risks?

A: U.S. stocks have experienced relatively mild declines so far, but experts warn that if the conflict drags on for more than a few months, it will seriously impact markets and the U.S. economy. The current resilience mainly stems from upward revisions in earnings expectations and a stable labor market, but long-term energy shocks and inflation pressures could break this balance.

Q: How should investors view the long-term impact of the Iran war on the U.S. economy?

A: Sembalast reminds investors not to overly rely on the “energy independence” narrative. High energy prices will continue to squeeze consumers and businesses, and Federal Reserve policy space will be limited. If the conflict becomes prolonged, demand destruction and recession risks will significantly increase, and investors should be alert to chain reactions in energy, transportation, and manufacturing sectors.

As of 14:53 Beijing time, U.S. fuel oil is continuously quoted at $4.5377 per gallon.