UBS proposes three oil and gas price scenarios amid the Iran conflict

Investing.com - The outlook for the oil and gas market largely depends on how the conflict involving Iran unfolds. UBS has outlined three possible scenarios, each potentially leading to very different energy price outcomes.

On Tuesday, oil and gas prices fell sharply after U.S. President Donald Trump stated that the war with Iran is “very thorough, essentially over.”

On Monday, concerns that the conflict could cause a long-term disruption to Middle Eastern energy supplies pushed crude oil prices close to $120 per barrel. However, after Trump’s comments suggested the fighting might end soon, prices dropped back below $90.

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1) UBS suggests that in the first scenario, the conflict de-escalates quickly in mid-March, with critical oil infrastructure remaining undamaged and shipping through the Strait of Hormuz resuming normally.

In this case, the bank expects Brent crude to average about $80 per barrel in March, then decline to the mid-$70s. European natural gas prices would also fall, with TTF initially around €50/MWh and then dropping to near €30 in the second quarter.

In this scenario, “inventory declines and in-transit oil can help manage short-term shortages,” said analyst Henri Patricot, while the natural gas market could rely on stored supplies to offset temporary disruptions in Middle Eastern LNG exports.

2) The second scenario considers a shipping disruption through the Strait of Hormuz lasting about a month. UBS states that as inventories decline faster and supplies from Gulf Cooperation Council oil producers are constrained, both oil and gas markets will tighten significantly.

“We expect oil prices to rise above $100 per barrel in the second half of March, with an average of $100 in March, and an average of $78 in the first quarter of 2026. As the disruption eases, prices are expected to fall to around $90 in the second quarter of 2026,” analysts said.

The natural gas market will also tighten, with LNG supplies remaining limited and demand reductions becoming necessary. TTF could rise to €80/MWh by the end of March.

Even if the disruption is eventually resolved, “normalization of oil and gas supplies could be delayed, with impacts extending into 2027,” the analysts added.

3) The most severe scenario assumes disruptions lasting over a month, with major energy infrastructure damaged. UBS projects that in this case, Brent crude could average about $110 in March and potentially rise to $150 or higher by the second quarter of 2026.

Analysts warn that such price levels could lead to “significant demand reduction.” The natural gas market would also tighten sharply, with TTF averaging around €73/MWh in March and rising to about €80/MWh in the second quarter.

They note that in this scenario, LNG supply shocks could resemble the impact of Russia’s 2022 reduction of gas supplies to Europe, when options for alternatives were limited and fuel switching was scarce.

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