Escalation of conflict in West Asia following joint US-Israel airstrikes on Iran has heightened risks to global energy supplies and pushed gold close to record levels, The Financial Express reported, citing UBS’s latest assessment.
Gold rose to $5,277 per ounce ahead of the weekend as investors sought safe-haven assets amid geopolitical uncertainty.
UBS said market volatility is expected to remain elevated as the Strait of Hormuz — a key route that handles roughly one-fifth of global oil demand — faces potential disruption.
Regional equity markets have already fallen 2–5 per cent, the report said.
Energy supply risks
According to UBS, about 2.1 crore barrels of oil flow daily through the Strait of Hormuz from producers such as Saudi Arabia and the UAE. While shipping companies have curtailed transit as a precaution, UBS said Iran may lack the military capacity to sustain a prolonged blockade in the face of a strong US presence.
The bank’s base case assumes any disruption to global energy supplies will be brief.
“Our base case remains that there will be only a brief disruption to the global supply of energy. We expect any initial rise in the price of oil to reverse, at least partially, once it becomes clear that supply disruptions are temporary, critical oil infrastructure is not destroyed, and the need for continued military action fades,” UBS said.
Inflation and central bank response
UBS analysis showed that a 10 per cent rise in gasoline prices typically adds about 0.2 percentage points to headline inflation in the first month, with a cumulative effect of 0.3–0.4 per cent.
However, the bank said major central banks are unlikely to overreact with immediate rate hikes, as policymakers generally avoid responding to one-off commodity price spikes, Financial Express reported.
Impact on Asia and India
China remains exposed, with about 13 per cent of its seaborne oil imports sourced from Iran.
For India, the primary concern remains crude oil prices, given its dependence on imports. However, UBS maintained cautious optimism that the duration of the shock may be limited if energy infrastructure damage remains contained.
The report noted that larger economies are likely to have built strategic reserves to cushion supply disruptions.
UBS also highlighted the US political backdrop, stating that the administration may be wary of allowing oil prices to spiral ahead of midterm elections due to the political sensitivity of high fuel costs.
Portfolio positioning and outlook
Rather than exiting markets amid volatility, UBS said holding diversified equity exposure may be more prudent.
“Historically, the impact of geopolitical shocks on markets has tended to be short-lived, unless they morph into economic shocks. Making snap decisions to de-risk portfolios amid geopolitical conflict has historically not been a profitable strategy,” the report said.
Despite the conflict, UBS said it sees potential for US indices to rise about 10 per cent by the end of 2026, with growth prospects in India, China and Japan.
The bank also expressed preference for sector leaders in Europe, including defence stocks, citing structural growth and their role as portfolio protection in uncertain geopolitical conditions.
While regional markets in West Asia have fallen as much as 5 per cent, UBS noted that the global economy’s sensitivity to oil prices has declined over time.
Maintaining diversified exposure across equities, fixed income, and commodities could help investors navigate current volatility, the Financial Express reported.
