UBS Equities-Global Equity Strategy _Middle East Tensions Implications_ ...

ab13 June 2025Global ResearchGlobal Equity StrategyMiddle East Tensions: Implications1) Markets tend to overreact to geopolitical shocks. Over 37 years as a strategist, markets most of the time initially overreact to political events (most recently, the FTSE over Brexit, the US market on the day of President Trump’s election in 2016, tariff announcements of April 2nd and less recently the Hong Kong market regarding Tiananmen Square in June 1989). The US equity and derivatives strategy team has looked at an extensive list of geopolitical events and arrived exactly at this conclusion, see here. Investors tend to overreact to risks that they find hard to calibrate. Figure 1: HK market performance during Tiananmen Square protests in 198900.10.20.30.40.50.60.70.80.912000220024002600280030003200340004-198905-198906-198907-198908-198909-198910-198911-1989Tiananmen SquareHang Seng IndexSource: UBS, Bloomberg, Refinitiv DatatstreamFigure 2: FTSE market performance Brexit Referendum in 201600.10.20.30.40.50.60.70.80.9156005800600062006400660068007000Brexit ReferendumFTSE100Source: UBS, Bloomberg, Refinitiv DatatstreamThe events in the Middle East are very very far removed from the big oil-market and market-moving events of: Iraq's invasion of Kuwait in August 1990 (which led to 3% of global oil being taken off the market and a near doubling of the oil price), the Iranian revolution in 1979 (where the oil price nearly tripled as 7% of global production was taken off the market) or the Oil Embargo in 1974 (which led to a tripling of the oil price). Not only were the oil price moves very dramatically higher than today but oil as as percentage of GDP (and hence its relevance) was also very sharply higher than is the case today. 2) Oil.Iran exports around 1.7mbd of oil (with c500m of spare capacity, should sanctions be lifted) or c1.6% of global supply. As yet there are no press reports of oil production being hit or targeted. President Trump had noted yesterday that he wanted a lower oil price, before overnight events. The oil team highlight that OPEC has c6mbd of stated spare capacity (5mbd de facto rising to 5.3mbd after the likely July production increase). One escalation scenario would be potential disruption to the Straits of Hormuz through which 22% of global oil is shipped. However, we note that Iran exports nearly all of its oil through the Straits of Hormuz and any disruption could potentially impact the exports of other countries such as Qatar. This report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 8. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investme