In the most extreme scenario, the Strait remains effectively closed for several months, sending oil prices skyrocketing to between $150 and $180 per barrel.
Despite the current ceasefire, the conflict with Iran continues to disrupt global energy markets, weighing on economic growth and heightening inflationary risks. Morgan Stanley Research outlines three potential scenarios for the markets, depending on how quickly flows through the Strait of Hormuz are restored.
Key takeaways
What began as a restriction on navigation in the Strait is now evolving into production disruptions in the Persian Gulf and beyond, intensifying the global energy supply shock.
Morgan Stanley Research now estimates that the average oil price will fluctuate between $80 and $90 per barrel in 2026, up from previous forecasts closer to $60.
The new energy environment is leading to a downward revision of growth forecasts and an upward revision of inflation estimates, complicating central bank decisions.
The course of the markets depends on three scenarios related to access to the Strait: from a "risk-on" recovery if flows are restored quickly, to an environment of increased friction with high prices, and to a severe shock that could lead to a recession.
In the event of deteriorating risks, leadership in equity markets is expected to shift from cyclical sectors toward quality and defensive companies, while demand for government bonds and "safe haven" currencies will increase.
Crisis expansion from transport to production
Even after the announcement of the ceasefire, uncertainty surrounding energy prices, the global economy, and financial markets remains elevated, affecting investors, businesses, and consumers.
Market disruptions—initially caused by the interruption of transport through the Strait of Hormuz—are now extending to production. Oil producers in the Persian Gulf are being forced to halt production as storage facilities fill up and export routes are restricted. Refineries and petrochemical plants worldwide, particularly in Asia, are beginning to feel the effects of reduced supply.
Morgan Stanley Research estimates that, even if tensions de-escalate soon, oil prices will remain at higher levels. In November 2025, the estimate for 2026 was approximately $60 per barrel for Brent.
As a result, growth forecasts are being revised downward, while inflation estimates are rising, leading central banks to adjust their monetary policy.
"The scenario of oil returning to $65 becomes less likely, even in the event of a resolution, as the disruption has expanded from transport to production," notes Martijn Rats, head of commodities research at Morgan Stanley. "Even if the Strait opens soon, it may take months for oil and gas production to normalize."
Scenario 1: De-escalation
In this scenario, flows through the Strait are restored within a month and oil prices stabilize between $80 and $90 per barrel. High-risk assets are expected to outperform, with cyclical sectors—such as consumer goods, banks, and industry—leading the rally, while defensive sectors likely lag behind.
"In this case, markets will feel substantial relief," says Serena Tang, head of cross-market strategy at Morgan Stanley. "Investors will refocus on growth factors such as earnings resilience and investments in artificial intelligence."
However, volatility may remain elevated due to ongoing geopolitical risk. In bonds, the yield curve will steepen, while the euro may strengthen against the dollar.
Scenario 2: Prolonged restrictions
In this scenario, about 80% of shipping is restored within a month, but up to a quarter is required for full normalization. Iran maintains influence over passage through the Strait, keeping supply risks at high levels. Oil prices move between $100 and $110 for 2026.
"This is a more complex scenario. Markets can absorb higher oil prices, but frictions are created," Tang points out. Central banks are likely to delay interest rate cuts or even consider hikes to contain inflation.
Stocks may continue to move upward, but with greater volatility and less certainty. A leading role will be played by high-quality companies and selected defensive sectors, such as healthcare.
Scenario 3: Substantial closure of the Strait
In the most extreme scenario, the Strait remains effectively closed for several months, launching oil prices to between $150 and $180 per barrel. Such a shock would significantly weigh on global demand, pushing policymakers to shift their focus from inflation control to avoiding a recession. Interest rates could be cut significantly to support growth and employment.
"Investors will shift to a 'recession model', reducing their exposure to equities and increasing positions in government bonds and cash," Tang notes.
In equities, the energy and defensive sectors, such as utilities and telecommunications, are expected to outperform, while the dollar is likely to strengthen against the euro and currencies such as the Swiss franc.
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