Iran war pressures accelerate for banks and payments

• Key insights: The war in Iran is threatening oil shipping, which could boost inflation and impact the banking industry. 
• What's at stake: Higher prices could impact consumer sentiment, creating more economic pressure. 
• Forward look: JPMorgan exec Natashe Keneeva said the Trump administration has limited time to protect oil shipping. 

With the war in Iran nearing the one week mark, the banking industry is still measuring the potential impact. One piece of the puzzle is a tight deadline to secure a small shipping passage.

"We have a few days, not five weeks," Natasha Kaneeva, head of global commodities strategy for JPMorganChase , said at a bank webinar Thursday morning. Kaneeva was referring to the Strait of Hormuz and President Trump's estimates that the war in Iran would last four or five weeks. In Kaneeva's estimation, that's not fast enough to mitigate the potential impact to the oil market.

"The risk of substantially higher oil prices is very high," she said.

Oil highway

Iran has threatened to attack ships in the Strait of Hormuz, effectively closing the waterway. The Trump administration has promised to provide insurance, at a cost, as well as a potential Navy escort for ships.

"The [Trump] administration needs to offer a safe passage. There's a lot of question marks about that," Kaneeva said. The question JPMorganChase's executives were pondering on Thursday was how this piece of the larger Iran war could impact oil and eventually banking and the economy. Their focus was on the Strait of Hormuz.

The Strait of Hormuz is the I-95 for Middle Eastern Oil. It's 29 miles wide, with a two-mile wide navigation channel, separating the Arabian Peninsula and Iran and connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. More than 20 million barrels of oil per day ship through the strait, or 25% of the world's seaborne oil trade, according to the International Energy Agency, and there are few options for oil to bypass the waterway.

"Any disruption to flows through the Strait would have huge consequences for world oil markets," the IEA said in informational materials.

Oil powers Saudi Arabia and the United Arab Emirates (UAE) can avoid the Strait, but Iran, Iraq, Kuwait, Qatar and Bahrain do not have a workaround, Kaneeva said. Stockpiles of oil would run out in these countries in a few days, at which point they would have to halt production, she said.

This would boost oil prices, which are currently about $80 per barrel.

"We could get up to $100 or $120 per barrel pretty quick," Kaneeva said, while not putting a specific timeframe on that, but noting it could be a matter of weeks.

Comparing the Iran war to Russia's Ukraine invasion of 2022, Kaneeva said inflation risks were higher in 2022, but the impact of the Russia-Ukraine war were largely regional. Also, the impact on energy shipping in Russia has been more muted, she said. "The impacts of the Iran war are more likely to be global," Kaneeva said. "We're not forecasting that, but that is the risk."

Banking and payments

JPMorganChase bank is not yet resetting its economic forecasts because of the Iran war, but is saying the war-related risks are going to persist.

"There's risks coming into the picture. And those risks don't have to be realized to have an impact on energy prices," Bruce Kasman, chief global economist at JPMorganChase, said during the bank's webinar. These risks include stresses on supply chains, energy costs, and thus inflation and economic risks. "The big wildcard is whether these risks get reflected in oil prices and actually short circuit sentiment," Kasman said.

Sentiment refers to the mood of consumers and businesses, and can be less predictable than prices. The panelists said the markets and the larger economy have not had a major reaction, but if the war expands or persists, that could change if consumer confidence decreases.

"The situation is fast-moving and we remain in the fog of war," said Amalia Bersin, a researcher with the Center for Geopolitics, said at the JPMorganChase webinar. "The political support for this in the U.S. is tenuous."

Banks have boosted lending to energy companies over the past year, buoyed by a de-emphasis on climate regulation during the second Trump administration. A rise in oil prices could benefit these banks in the short-term, but JPMorganChase analysts noted the risks of longer-term inflation on other economic activity.

In a research note, analysts at Keefe, Bruyette & Woods said the Iran war will have a negative near-term impact on the financial sector, in line with the broader market–but not every part of the financial services industry will react the same way. Capital markets and consumer finance will be the most negatively impacted part of the financial industry due to impacts on investments or lending tied to the Middle East. Payments and property and casualty insurance will be more protected from the war, according to KBW, adding personal auto insurers should fare better due to reduced driving from higher oil prices.

In the payments sector, Visa and Mastercard will be well-positioned for an extended war due to their broad-based business models, and Jack Henry and FIS have lower exposure to consumer spending, KBW said. Other payment companies such as PayPal, Klarna and Adyen, which rely on discretionary spending, are more exposed, KBW wrote, adding that Western Union and other firms with local payment businesses in the Middle East are also exposed to payment volume risk.

Aaron Klein, the Brookings Institution's Miriam K. Carliner chair in economic studies and senior fellow at the Center on Regulation and Markets, said banks that serve crypto firms may face heightened scrutiny.

"America's growing use of the global payment system for foreign policy drives countries to consider alternatives, especially as America flexes its military might unilaterally and without provocation. America's role as the operator of the world's financial system is predicated on it obeying global rules of engagement," Klein told American Banker in an email, noting Iran has been subject to sanctions for decades. "Crypto is at the front lines of sanctions evasion and while crypto firms are starting to get bank charters, I'm not quite sure we are there. Banks who serve crypto firms may have more to worry about, assuming regulators are keeping an eye and enforcing rules," Klein said.–Kate Berry contributed to this report.