UBS Warns Gulf Conflict Driving 2-Way Market Risk

Global markets are facing renewed stress as the Gulf conflict continues to escalate, with UBS warning investors to brace for persistently heightened volatility and a widening range of potential outcomes.

In a recent note headed by the bank’s Chief Investment Office, UBS noted that markets have come under pressure “amid an escalation in strikes against energy infrastructure across the Middle East,” sending crude sharply higher and weighing on equities.

UBS pointed to the spike in Brent crude after Iran struck major facilities in Qatar and the United Arab Emirates, while WTI “tested USD 100/bbl.” The S&P 500 dropped 1.4% to its lowest level since November, with Asian equities also sliding.

Political tensions remain at the forefront. UBS highlighted that President Trump urged de-escalation but also threatened “massive” retaliation if Iran launches additional strikes on regional energy assets.

UBS added that Saudi officials cautioned their patience with Iran is “not unlimited,” raising the risk of a broader confrontation.

Despite the turmoil, UBS’s base case still calls for eventual de-escalation and a reopening of tanker flows through the Strait of Hormuz.

Even then, it expects crude to “remain elevated, trading around USD 90/bbl into end June.” But in a risk scenario, UBS warned Brent “could overshoot… to USD 150/bbl or higher.”

The bank flagged concerns that extensive damage at Qatar’s Ras Laffan LNG hub could delay repairs beyond peak winter demand, potentially tightening global supply.

UBS also cautioned that energy-importing markets, particularly in Asia and parts of Europe, could face sharper drawdowns if the crisis persists.

Policymakers, UBS said, now face a “tightrope” as higher energy costs threaten to fuel inflation and weigh on growth.