The global economy stands at a "crossroads"—as the energy shock nears a critical point.

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This is an unprecedented energy shock—while a "black hole" has opened up on the supply side, the market price signal has yet to fully awaken. Rapid depletion of inventories and the large-scale release of strategic reserves, along with market optimism about the short-term reopening of the strait, have temporarily suppressed a spike in oil prices.

However, the warning from JPMorgan’s economists is clear and severe: once inventories fall to operational minimums, a nonlinear surge in prices will become inevitable, and at that moment, the fate of global economic expansion will be rewritten.

Unprecedented Supply Shock: Why Is the Oil Price Increase So "Moderate"?

The blockade of the Strait of Hormuz has removed over 10% of global crude oil supply—an unprecedented figure.

Yet, April Brent crude oil futures are up only about 43% over the average of the past year, which appears "restrained" compared to the historic shocks of 1973-74 or 1979.

The reason lies in three simultaneous buffer mechanisms: large-scale release of commercial inventories and strategic reserves, market optimism about an imminent reopening of the strait, and spontaneous contraction on the demand side.

But JPMorgan makes it clear: this "calm" is fragile—once inventories are exhausted to the operational minimum, prices will face a nonlinear violent increase.

Dual Scenario Framework: Baseline vs. Adverse, A Tale of Two Worlds

JPMorgan has constructed two clear scenario paths:

Baseline scenario (60% probability): The strait reopens in the coming weeks. Brent crude averages $100 per barrel this quarter, then gradually falls back to $80 per barrel by Q4 2026.

The energy price shock will reduce cumulative global GDP by 0.6%, while pushing cumulative CPI up approximately 1%. Global growth returns to potential levels, jobs recover, the Fed keeps rates unchanged, and the ECB leans toward tightening.

Adverse scenario (40% probability): The strait remains blocked, Brent crude surges to $150 per barrel from May to July, then partially retreats to around $110 per barrel in Q4.

Model estimates show this scenario will lower cumulative global GDP by 1.6%, and increase cumulative CPI by 2.2%. The global economy will fall into stagflation, with recession risk surging, potentially resulting in a historical shock even fiercer and more akin to 1979 and 1990 than to 2022.

The probability of a global recession stays elevated at 35%, consistent with JPMorgan’s view at the start of the year. Early-year growth momentum initially suppressed recession risk, but the Middle East conflict has emerged as a counterbalancing threat.

Three Pillars of Resilience Supporting the Baseline Scenario

JPMorgan’s relatively optimistic baseline forecast is rooted in three pillars supporting the underlying resilience of the global economy:

The powerful engine of technology capital expenditure. With AI-related capital demand exploding, global capital expenditure grew 5.1% over the past four quarters, with the US even posting double-digit growth.

JPMorgan’s real-time capex forecasting model shows global capital expenditure annualized growth tracking at 7% in Q1 2026. This wave of demand is spurring Asian exports, with manufacturing output in those regions jumping at a 12% annualized rate over the three months ending February this year.

Recovery in corporate earnings boosts confidence. Global corporate profits are estimated to rise 20% year-on-year in 2025, lifting business sentiment sharply from depressed levels.

JPMorgan forecasts that as corporate caution fades, global employment growth will rebound at midyear to an annualized 0.8%, while US nonfarm payrolls will return to monthly gains above 100,000.

Consumers’ smoothing ability. Despite a sharp slowdown in job growth, global consumer spending still saw a robust annualized 2% increase last year, mainly supported by fiscal aid, wealth effects, and credit channels.

In the US, for example, households have maintained consumption by sharply lowering the personal savings rate, which means a 5% CPI shock this quarter would need to be absorbed by further reductions in the savings rate.

Central Bank "Patience"—This Time Really Is Different

History shows that aggressive tightening by central banks during previous energy price shocks has often been the main downswing driver for the global economy. During the two oil crises of the 1970s, major market policy rates soared, significantly contributing to global recessions.

However, the current macro backdrop is entirely different.

Before this energy shock erupted, wages and core inflation had been steadily cooling, with weaker job growth. Central banks had just finished a 140-basis-point easing cycle, with lagged monetary policy effects gradually stimulating the economy. Meanwhile, financial conditions are historically loose—in fact, such low financial stress during a major global energy shock is unprecedented.

In the baseline, the Fed is expected to stand pat for the whole year, while the ECB is inclined to tighten.

If the adverse scenario materializes, JPMorgan believes the Fed is unlikely to hike proactively just because of the oil price shock, but the risk of broader, synchronized tightening among major central banks will rise significantly, becoming a key variable for financial conditions and overall economic resilience.

Inflation Path: Rising Together, But Divergence Intensifies

Global inflation has hovered around 3% annualized for the past three years. The energy price shock is expected to push CPI growth up to 5% annualized this quarter, with full-year CPI inflation forecast at 4%.

However, the future path of core inflation will diverge markedly—the US core PCE inflation is expected to remain above 3% this year; in Canada and continental Europe, inflation may approach the 2% policy target; most emerging markets are expected to show "sticky and moderately high" inflation.

This divergence will directly lead global monetary policies down separate paths, providing important clues for relative value across asset classes.

Three "Fatal Variables" in the Adverse Scenario

If the Strait of Hormuz blockade drags on, JPMorgan identifies three key risks that could amplify the nonlinear shock:

Nonlinear spiral of price surge and supply shortage. Cumulative output cuts from a prolonged blockade could trigger panic-driven precautionary demand, driving oil prices well beyond the forecasted $150 per barrel. Exhaustion of strategic inventories would further trigger physical supply constraints, forming a vicious cycle of mutually reinforcing price surges and shortages.

Deep behavioral vulnerabilities. Current global growth is structurally unbalanced—tech demand is booming, but non-tech sector spending and employment are overall weak, and household saving rates have already dipped significantly.

If Brent crude climbs to $150 or even higher, global CPI could peak at a 10% annualized rate within three months, severely undermining consumer confidence and threatening the just-normalizing business sentiment, which would in turn weaken labor demand, dealing a second blow to household incomes.

Risk of central banks losing patience. Facing the initial inflation shock, policy responses will diverge among central banks. JPMorgan expects the Fed not to hike directly in response to the oil shock, but if many global central banks tighten at once, this would decisively impact financial conditions and economic resilience, risking a repeat of policy errors seen during the 2021-23 inflation-fighting cycle.

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