The US-Iran conflict has seen a breakthrough with the announcement of an agreement that is expected to include the reopening of the Strait of Hormuz and an extended ceasefire. However, private banks remain cautious on the risks of re-escalation.
After nearly four months since the beginning of the US-Iran conflict, both sides have announced that an agreement has been reached to end the war. The deal, which is scheduled to be signed on Friday in Switzerland, is expected to involve the reopening of the Strait of Hormuz, a 60-day extension of the ceasefire, a lifting of US sanctions and the unfreezing of some of Iran’s overseas assets.
Despite the positive developments, private banks remain cautious and have largely kept their house views unchanged.
Re-escalation risk
While the industry’s consensus base case is for a diplomatic resolution to the Iran conflict, there are several major areas that are being monitored, including the possibility of re-escalation and other existing conflicts in the Middle East.
“The prior ceasefire didn’t lead to a complete halt to hostilities, and periodic flare-ups in tensions could still lead to bouts of renewed market volatility,” said UBS in an investment note. “Additionally, long-standing issues such as Iran’s nuclear and ballistic missile programs remain unresolved, while conflicts between Israel and Hezbollah have added another layer of complexity to the situation. Just hours before the announcement of the deal, Israel launched an air strike on southern Beirut in a move it claimed to be a response to Hezbollah’s drone attacks on northern Israel.”
“A sustained de-escalation in the Middle East conflict would build conditions for a broadening of the equity market rally and improve investor sentiment. However, risks of renewed escalation remain if negotiations falter or regional tensions resurface. We keep our portfolio positioning unchanged for now and continue to monitor developments closely,” said Lombard Odier in a separate note authored by Samy Chaar, chief economist and CIO Switzerland, as well as Luca Bindelli, head of investment strategy.
Outlook for oil
For investors, oil is the one of key markets being closely watched and Lombard Odier believes the agreement reinforces its forecast of an average price of USD90 per barrel over the six months since the start of the conflict and its 12-month target of USD78 per barrel. The bank also expects that the Hormuz reopening will lead to half of oil flows recovering in the coming weeks and full replenishment to be achieved well into 2027.
According to Norbert Rücke, Julius Baer’s head of economics and next generation research, the bank sticks to its cautious view on oil, adding that energy markets are heading for the “new-old setup”.
“The new-old market order for both oil and natural gas is one where the oversupply dynamics are likely harsher than experienced late last year,” Rücke explained. “In the meantime, the energy transition has partially accelerated, and the United Arab Emirates OPEC exit likely intensifies the supply competition. Of course, there are various open questions in the long term, especially if we see Iran partially following Venezuela’s pathways in terms of economic restoration. 2026 likely provides a master class in geopolitics and resilience, and the message shapes up to be a comforting one.”
