Oil could hit $200 if Hormuz stays shut, UBS economist warns

The US-Iran conflict has disrupted supplies through the Strait of Hormuz, which before the war carried about a fifth of the world's oil and liquefied natural gas supplies. Keystone-SDA

Oil prices could soar to $200 (CHF162) a barrel if the Strait of Hormuz remains closed for a prolonged period, UBS economist Alessandro Bee told the Keystone-ATS news agency, warning that such a scenario could trigger a global economic slump.

“In our base-case scenario, we assume that the oil market will recover gradually over the coming quarters, albeit with some volatility,” the expert told the news agency.

“We expect prices to range between $80 -100 dollars a barrel. However, if the Strait of Hormuz were to remain closed for several quarters, then oil reserves would eventually run out and the market could panic. In that case, we believe prices of between $150 and $200 are also possible.”

“This would trigger a recession,” the analyst continues. Beyond the Middle East, “a second risk is, of course, Donald Trump’s unpredictable economic policy, as seen recently in relations with Canada. As a third risk, I see the artificial intelligence sector. If the major productivity gains fail to materialise, we must expect significant reductions in investment. This could have repercussions on the economy.”

The situation on the bond markets is also challenging. The rise in yields is probably due to higher inflation and expectations of interest rate rises, but “it is also possible that investors are increasingly losing confidence in the sustainability of debt”. This could lead to further turbulence.

Despite the clouds on the horizon, UBS is betting on a clear recovery of the Swiss economy.

He notes: “There are various indicators pointing to an economic improvement in Switzerland. Firstly, the PMI indices for purchasing managers have been almost consistently above the 50-point growth threshold since March: that’s a good sign. The services PMI has also improved significantly.”

“I’m also encouraged by the trend in employment, following last year’s slowdown.”

The international outlook is also encouraging at present. “We’re seeing positive trends in the eurozone. In Germany, for example, indicators have been trending upwards in recent months. We’ve also seen positive signs in the US. I’d say that, overall, the picture now points to an econonic recovery,” the UBS economist concludes.

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Translated from Italian, reviewed by an English Department journalist.