UBS Lays Out Three Energy Market Scenarios As Fog Of War Thickens

Concerns over the exploding regional conflict risk and the ongoing Operation Epic Fury assault against Iran continue to buoy Brent crude prices at the $90/bbl level despite 32 member countries of the International Energy Agency agreeing on a 400 million barrel SPR dump, in an attempt to cap crude prices from skyrocketing out of control.

This is more than double the 182 million barrels released after Russia's invasion of Ukraine in 2022. It is unclear how much impact the SPR release will have on broader energy markets. We noted here that the effects are likely to be muted.

U.S. Defense Secretary Pete Hegseth warned earlier today that Operation Epic Fury was entering its "most intense day of strikes" inside Iran, signaling an increased focus on high-value IRGC targets.

Against that backdrop and amid the chaos in the Middle East, we cite a new UBS note from analyst Henri Patricot, who outlined three oil and gas market scenarios as the regional conflict deepens.

Each of Patricot's scenarios shows a corresponding price target, offering clients a framework to navigate the extreme volatility in energy markets:

Scenario 1: Quick de-escalation

In a first scenario, there is a quick de-escalation of the conflict, by mid-March. No critical oil infrastructure (oil fields, exports terminal) is damaged and flows via Hormuz resume. This is consistent with the base case we laid out in our oil price and gas price updates last week. In this scenario, we see Brent averaging $80/bbl in March, before dropping to the mid-$70s. TTF gas prices hold €50/MWh, before falling to the high-€30s in 2Q26. Inventory drawdowns and oil on water can help manage the near-term shortfall (~10Mb/d, Figure 6). For gas, Middle East LNG exports, including Qatari production, are still suspended, but inventories cover the short-term gap.

Scenario 2: Hormuz disruptions last ~1month

If Hormuz disruptions persist for a month, both oil and gas markets would further tighten. This would increase the pace of inventory drawdowns and supply shut from GCC countries. We would expect oil prices to rise above $100/bbl in the second half of March, averaging $100/bbl in March and $78/bbl for 1Q26, before coming down to $90/bbl in 2Q26 as disruptions ease. For gas, LNG supply would be reduced for longer, requiring more demand reduction, especially as spare capacity and storage are limited. We would expect TTF to rise towards €80/MWh by end-March, averaging €65/MWh in March and €46/bbl for 1Q26, before coming down to €50/MWh in 2Q26. Normalisation for both oil and gas could be delayed, with the impact stretching into 2027.

Scenario 3: Extended Hormuz disruptions

In an even more cautious scenario, if disruptions last longer than a month and major oil and gas infrastructure is damaged, the market impact could be more significant. Brent prices could average $110/bbl in March and might climb towards $150+ by 2Q26. These price levels could lead to a notably reduced level of demand. On the gas side, TTF could average €73/MWh in March and rise to €80/MWh in 2Q26. For LNG, this could be similar to the 2022 Russian gas cuts to Europe, with few alternatives and potentially little room for fuel switching.

Earlier on Tuesday, the IEA announced that its members unanimously agreed to release 400 million barrels from the group's global oil stockpiles; this was the largest-ever release of emergency oil reserves by governments - more than double that agreed after the Ukraine war broke out in 2022 - as the G7 and IEA seek to contain a spike in energy prices driven by the Middle East war.

"The oil market challenges we are facing are unprecedented in scale," IEA Executive Director Fatih Birol Wednesday said in a statement. "IEA member countries have responded with an emergency collective action of unprecedented size."

The IEA, which coordinates stockpile releases for OECD countries, has said its 32 members hold more than 1.2 billion barrels in public emergency stockpiles, including the largest buffer, the US Strategic Petroleum Reserve, which however was largely drained under the BIden administration.

There are a further 600 million barrels of industry stocks under government obligation.

Yet Brent crude still trades near session highs, around $91/bbl.

As we pointed out in the IEA note, the problem is not the SPR level; in fact, it is a flow problem (read here).

More in the full UBS report available to pro subs.