Strategists at UBS caution that global equity markets are not fully pricing in the broader economic consequences of the current oil supply shock, suggesting that the knock-on effects on growth and corporate earnings could be more prolonged than investors anticipate.
Brent crude has climbed back above $100 per barrel, after briefly nearing $120, as the Strait of Hormuz remains largely closed to regular commercial shipping following the escalation of tensions in the Middle East.
Shipping activity through the key waterway has dropped sharply compared with pre-conflict levels, preventing millions of barrels of crude and refined products from reaching global markets each day.
“The current disruption is already comparable to the largest oil supply shocks on record, with volumes impaired well beyond typical geopolitical episodes,” UBS strategists led by Artour Danilov said in a note.
In the bank’s base-case scenario, global oil supply is not expected to return to January levels until late in the year, with real oil prices remaining 30–40% higher for around six months before easing somewhat.
Under a more pessimistic outlook, supply would only recover halfway even after a full year.
“Markets appear to be currently underestimating the persistence of these second-round effects,” the strategists wrote, pointing out that equity markets have stabilized after an initial decline, while credit spreads remain contained and earnings forecasts have seen only limited revisions.
Investor positioning also indicates expectations for a relatively quick normalization in oil prices, suggesting markets are treating the disruption as temporary rather than a longer-term constraint on global growth.
Europe is viewed as especially vulnerable. Elevated energy costs effectively act as a tax on households and businesses in a region heavily dependent on imported oil and gas, squeezing incomes, margins, and confidence while limiting central banks’ ability to respond.
“This has historically led to weaker earnings, valuation derating, and limited policy flexibility as inflation constrains central bank responses,” the strategists said.
By contrast, the Nasdaq 100 in the U.S., driven by asset-light companies with structural growth and relatively low energy exposure, has continued to show resilience and attract upward earnings revisions.
“Strong balance sheets, secular AI-driven demand, and less cyclical cash-flow profiles make downside in U.S. Tech comparatively less likely in our view,” the strategists added.