Introduction#
The future of oil and gas prices is closely tied to the ongoing conflict involving Iran. UBS has outlined three possible scenarios that could lead to significantly different outcomes for energy prices.
Scenario One: Quick Resolution#
In the first scenario, UBS predicts a rapid de-escalation of the conflict by mid-March, with no damage to essential oil infrastructure. This would allow normal shipping through the Strait of Hormuz to resume. Under this outcome, Brent crude oil prices are expected to average around $80 per barrel in March, eventually easing to the mid-$70s. European gas prices would also decrease, starting near €50 per megawatt-hour (MWh) and falling to the high €30s in the second quarter. Analysts believe that existing oil inventories and stored gas supplies could help manage any short-term supply issues.
Scenario Two: Month-Long Disruptions#
The second scenario considers a situation where shipping disruptions last about a month. In this case, UBS anticipates a tighter market for both oil and gas, leading to faster declines in inventories. Oil prices could rise above $100 per barrel by late March, averaging $100 for the month. Gas prices might increase to around €80/MWh by the end of March due to limited liquefied natural gas (LNG) supply. Even if disruptions ease, the return to normal conditions may take until 2027.
Scenario Three: Extended Disruptions#
The most severe scenario involves prolonged disruptions lasting more than a month, along with damage to major energy infrastructure. In this case, UBS forecasts Brent crude prices averaging around $110 per barrel in March, potentially reaching $150 or more by the second quarter of 2026. This could lead to a significant drop in demand. Gas prices would also rise sharply, averaging about €73/MWh in March and increasing toward €80/MWh in the following quarter. The impact could resemble the gas supply crisis Europe faced in 2022 due to Russia's cuts, when alternatives were limited.