Hormuz risk has not eased, and oil and gas prices still face upward pressure

Overview

This report discusses the impact of escalating tensions in the Iran conflict and risks to transit through the Strait of Hormuz on the global oil and gas market. UBS believes the U.S. president's comments provide a time frame, but do not materially change market dynamics; until the conflict ends and the corridor reopens, the market still faces supply gaps, inventory drawdowns, and upside price risk.

Core views

The core view is that short-term oil and gas price risk remains tilted to the upside. The United States may continue to pressure Iran for another two to three weeks; if Iran's energy infrastructure is struck, it has previously said it may retaliate against regional energy assets. In the Strait of Hormuz, the key issue is not just transit fees, but that Iran could potentially control about 14Mb/d of oil flow through the strait. Without an agreement, tanker traffic may not resume quickly.

Analysis framework

The report assesses oil price risk through geopolitical event tracking, estimates of oil flow through the Strait of Hormuz, offset calculations for emergency reserve releases, global inventory trajectories, and the historical relationship between Brent prices and inventories. Charts include a waterfall of the Hormuz oil flow gap, a global inventory scenario line, a scatter plot of Brent prices versus global inventories, and inventory coverage tables for OECD, China, and India.

Methodology notes

• Supply shock analysisStrait of Hormuz oil flow gap calculation

  Offsets pre-conflict oil flows through Hormuz against Saudi and UAE pipeline diversions, Iranian oil flows, Ceyhan exports, limited releases, and strategic reserve releases to derive the remaining shortfall.

  The report estimates that pre-conflict Hormuz-related oil flows exceeded 20Mb/d, and that after diversions and reserve releases there is still a remaining gap of about 9Mb/d.

• Inventory cycle analysisGlobal oil product inventory scenarios

  Compares the 2026 implied balance, a two-month disruption scenario, the 2025 path, the 2020 to 2024 range, and the five-year average.

  UBS believes inventories were already near the five-year average by the end of March, and if the disruption continues through the end of April, inventories could fall below the historical range.

• Price sensitivity analysisBrent price and global inventory relationship

  Uses the historical scatter relationship between global total inventories and Brent crude prices to infer a price range under low-inventory conditions.

  The chart suggests that under UBS's estimated inventory scenario for the end of April, Brent prices could reach above $150/bbl.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent crude oil

  Directly affected by transit through Hormuz and global inventories

  Strengths

  Supply gaps and low-inventory scenarios provide upside support for prices.

  Weaknesses

  If the conflict de-escalates or the corridor quickly reopens, the risk premium may fade.

  Comparison

  Relative to a pre-conflict scenario around $72/bbl, the report's chart shows a pressure range above $120/bbl to above $150/bbl under low-inventory conditions.

  Risks

  The geopolitical path, the scale of inventory releases, demand changes, and the speed of corridor reopening could all change the price outcome.

• Global oil and gas equities

  Higher oil and gas prices usually support upstream cash flow and earnings expectations

  Strengths

  High prices can improve revenues, cash flow, and capital return capacity for upstream companies.

  Weaknesses

  Refining, marketing, and chemicals margins may be affected by feedstock costs, demand, and spread volatility.

  Comparison

  The report does not provide specific company ratings or relative industry rankings.

  Risks

  Oil and gas price volatility, refining/marketing/chemicals margin volatility, and normal exploration risk.

• Natural gas

  Related to regional energy infrastructure and geopolitical risk

  Strengths

  Risks to energy infrastructure may increase the overall energy risk premium.

  Weaknesses

  The report remains focused on oil and Hormuz oil flows, with limited quantitative data on natural gas.

  Comparison

  Compared with crude oil, natural gas lacks a clear price target or inventory framework in this article.

  Risks

  Attacks on regional energy assets, supply chain disruption, and price volatility.

Key data

• Pre-conflict oil flow through Hormuz>20Mb/dThe report text says the pre-conflict scale exceeded 20Mb/d, and the chart starts at 20.5.
• Current estimated supply gap12Mb/dAfter about 6Mb/d of diversions via Saudi Arabia and the UAE and while Iranian oil flows continued, the shortfall estimate did not change materially.
• Remaining gap after emergency reserve releasesabout 9Mb/dEven after including U.S. SPR, Japanese inventory releases, and other IEA stock releases, the remaining gap is still described as very large.
• Oil flow through Hormuz that Iran could potentially controlabout 14Mb/dThe report argues that the real challenge is Iran's control over that scale of oil flow, not the transit cost itself.
• Potential Brent price scenario>$150/bblIf there are no signs of improvement, the report believes oil prices could rise further this month and exceed this level.
• OECD total government stocks1,245,843 kbFigure 4 shows OECD government stocks below the five-year average of 1,307,261 kb.
• OECD total stocks3,977,616 kbFigure 4 shows OECD total stocks close to the five-year average of 4,001,274 kb, equivalent to 88 days of demand coverage and 247 days of net import coverage.

Impact & implications

In terms of asset implications, oil and gas prices and oil and gas company earnings may be supported by supply risk in the near term, but market pricing depends heavily on whether the conflict de-escalates, whether transit through Hormuz resumes, how fast inventories decline, and whether emergency reserve releases can cushion the gap. If the disruption persists, low inventories and large-scale restrictions on oil flows could push prices higher; if U.S. action stops and Iran quickly allows tankers to pass, the risk premium could ease.

Risks

• Further escalation in the U.S.-Iran conflict, especially if energy infrastructure becomes a target.
• Iran restricting or controlling tanker traffic through the Strait of Hormuz, causing oil flows to recover more slowly than expected.
• Uncertainty over how GCC countries, the United States, and allies would handle reopening the strait, which could trigger further conflict.
• Emergency reserve releases being insufficient to offset the supply gap, pushing global inventories below the historical range.
• Volatility in oil and gas prices, global refining/marketing/chemicals margins, and oil and gas exploration activity.
• If the conflict de-escalates quickly or an agreement is reached, the upside risk in oil and gas prices could reverse quickly.

What to watch

• The intensity of U.S. actions against Iran over the next two to three weeks and whether those actions stop.
• Whether Iran accepts an agreement and changes the transit rules in the Strait of Hormuz.
• The pace of tanker traffic through Hormuz, transit fees, and whether rules for friendly countries are implemented.
• The diversion capacity of Saudi and UAE pipelines and whether Iranian oil flows continue.
• The scale and pace of inventory releases by the U.S. SPR, Japan, and other IEA members.
• Whether global oil product inventories fall below the lower bound of the five-year range by the end of April.
• Whether Brent crude moves close to or above key scenario levels such as $120/bbl and $150/bbl.