Markets are pricing a rapid end to the Middle East conflict, which Luis Oganes, JP Morgan's Head of Global Macro Research, told a TBC Capital conference in Tbilisi, is a mistake.

Oganes told the conference that the oil futures curve was reflecting a resolution that may not materialise on the timeline investors are assuming. Credit spreads have widened only modestly, while equities have corrected just 2-3% from pre-war levels. "If you ask me where the market is being overly optimistic, I would say it is in the oil price curve reflecting rapid resolution."

The reason for his caution is straightforward. Even if the US and Israel reach a ceasefire with Iran, the Strait of Hormuz may not reopen automatically. Iran has been explicit about its conditions: compensation for the war, security guarantees against future attacks and a nuclear agreement. "The points of discussion are so far apart that assuming that in a couple of months we will have everything go back to normal feels very optimistic,” Oganes said. 

JP Morgan calculates that approximately 16mn barrels per day of global oil supply have been disrupted by the closure, more than twice the peak demand destruction seen during the entire COVID pandemic. The bank estimates each million barrels per day of lost supply adds roughly $4 to the Brent price. The arithmetic produces $64 of upward pressure on oil from the disruption alone.

For the Caucasus and Central Asia, the implications are direct. Several countries in the region are energy importers and have limited ability to insulate themselves from price channel effects, regardless of where individual countries source their supply. Nicolaie Alexandru, JP Morgan's Global Head of EM Edge, noted at the same conference that Georgia is the most exposed energy importer in the region, with hydrocarbon imports equivalent to roughly 2.5% of GDP.

When asked whether Georgia's sourcing of energy from Azerbaijan, which does not rely on the Strait, might provide insulation, Alexandru was measured in response. Russian crude, which used to trade at a $20-25 discount to Brent, is now trading at a premium. "Even if you have access to supply, you will have to pay more," he said. 

JP Morgan has revised its baseline oil assumption to an average of $80 for 2026, peaking around $91-92 in the second quarter, and has cut growth forecasts for the region by approximately 0.2 percentage points on average. The Middle Corridor, the overland trade route connecting China to Europe via the Caucasus, may provide some transit offset as Middle East disruption redirects trade flows. Alexandru said the effect was real but hard to quantify and unlikely to outweigh the price channel.

Before the conflict, markets were pricing more than 60 basis points of Fed cuts in 2026. JP Morgan had already been forecasting no cuts, citing an economy growing above potential with core inflation at 3.1%. That view has been validated, Oganes said, though for the wrong reasons. He does not expect the Fed to hike but does not expect cuts either. In Europe the moves have been more dramatic, with the European Central Bank (ECB) shifting from no expected action to three expected hikes, and the Bank of England from 40 basis points of cuts to three hikes with increases expected as soon as April.

Beneath the immediate conflict, Alexandru flagged what he described as the biggest medium-term risk for the region, one that receives far less attention than the current war. If Russia and Ukraine reach a peace agreement, the capital flows that have driven growth across the Caucasus since 2022 could reverse. Georgia and Armenia both benefited from Russian relocations, remittances and capital inflows after the invasion. 

"If there were to be an agreement, I think there is a risk that this will reverse," Alexandru said. "From my point of view, that is the biggest risk for the countries in this region, not necessarily ceasefire itself, but reversal of those flows." Countries have built reserves and exchange rate flexibility was available as a buffer, he said, but the transition would not be painless.

The region entered this period of turbulence from a position of strength, with growth above potential, reserves at record levels and current accounts improving. Whether that position holds depends considerably on how long a war that markets expect to end quickly drags on.