The continued blockade of the Strait of Hormuz is pushing the global economy toward a severe inflation stress test. According to Wind Trading Desk, UBS's global macro report released on April 13 warned that if the strait disruption persists until late April, US inflation could peak at 5%. This level would drastically narrow the Federal Reserve's policy response space and potentially interrupt the global economy's difficult recovery from the 2025 tariff shock.
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This risk is superimposed on an extremely fragile inventory environment. UBS noted that global crude oil and refined product inventories fell into the bottom third of historical levels by late March and could hit absolute historic lows in April; European natural gas reserves are also approaching dangerous lows similar to the early stages of the Russia-Ukraine war in 2022. The median increase in global energy price inflation has reached its highest level in 25 years, with almost no buffer left on the supply side.
More troublingly, this shock occurs at a point when the US economy is already under significant pressure. Adjusted non-farm employment for 2025 is near zero growth, consumer and business confidence are both below Eurozone levels, and liquidity for the bottom half of the US income distribution is nearing exhaustion—UBS explicitly stated that this group's current ability to withstand inflation shocks is far weaker than two or three years ago.
Historical experience shows that interest rates tend to rise during oil price shocks. However, the Federal Reserve currently faces a dilemma: tolerating excessive inflation rises would further erode the already fragile consumption base; responding with rate hikes could accelerate the economic downturn already under pressure from tariffs. UBS scenario analysis indicates that this time, the central bank has almost no easy escape options.
<h2>Three-Scenario Framework: Duration Determines Inflation Severity</h2>
UBS's oil team established three scenario frameworks: pre-conflict baseline, a two-month disruption, and a prolonged disruption. Under the worst-case prolonged disruption scenario—where the Hormuz blockade extends through late April—US inflation will peak at 5% in the second quarter.
Depending on the specific timing, this energy disruption could be one of the largest oil supply shocks on record. Global crude oil and refined product inventories fell into the bottom third of historical levels by late March and could hit absolute historic lows in April, meaning the global economy has almost no inventory buffer to smooth supply gaps. European natural gas reserves are also approaching the low levels seen during the 2022 Russia-Ukraine conflict, making the energy security situation increasingly tense.
UBS also pointed out a second potential bottleneck beyond Hormuz in the report, reminding investors that current geopolitical risks facing the global energy supply chain are not limited to a single node. Notably, there is no obvious linear relationship between countries' dependence on Middle Eastern oil and domestic gasoline prices at the pump, indicating that the terminal transmission mechanism for energy prices varies by country and is influenced by multiple factors.
<h2>Rising Vulnerability Among Low-Income Groups, Reduced Shock Absorption Capacity</h2>
This round of inflation shocks is hitting the groups least capable of resisting them. Liquidity for the bottom half of the US income distribution is nearly exhausted, and their ability to absorb oil price shocks is significantly lower than two or three years ago. The report states that the continued exacerbation of income inequality means the social cost of this inflation surge will be highly concentrated among low-income groups, and the downward pressure on consumption spending cannot be underestimated.
From the perspective of the overall economic environment, vulnerability is equally undeniable. Excluding the technology sector, US imports have fallen to their weakest level since the pandemic and the global financial crisis; the actual pass-through rate of tariffs to domestic prices is approximately two-thirds of model estimates, and this inflationary pressure is still brewing. The cumulative effect of the oil price shock will further compress the downward space for overall inflation.
There are also hidden dangers at the asset price level. A 25% decline in the S&amp;P 500 index would trigger household equity wealth losses comparable to those during the global financial crisis or the bursting of the internet bubble, while US household wealth relies far more heavily on equity markets than the Eurozone, making this channel's potential drag on consumption demand impossible to ignore.
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<h2>Central Bank Dilemma: Historical Patterns Cannot Be Directly Applied</h2>
Historical data provides certain reference coordinates for the market: During previous oil shocks, interest rates tended to rise, credit spreads remained relatively manageable, and the US dollar was generally weak. UBS systematically reviewed the communication frameworks of the Federal Reserve and the European Central Bank following past oil shocks, as well as the performance patterns of stock markets at that time, to provide historical context for the current scenario.
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However, the current background differs critically from history. Global growth was previously on a track of gentle recovery from the 2025 tariff and uncertainty shocks, a repair process that itself was extremely fragile; meanwhile, tariff uncertainty has made the Federal Reserve's policy signals increasingly ambiguous, and a sudden spike in inflation will further force it to make even harder trade-offs between supporting growth and controlling inflation. In the Federal Reserve and ECB's records of past responses, there has never been a precedent for simultaneous tariff shocks and large-scale energy supply disruptions.
Europe's direct exposure in this shock is relatively low—UBS data shows that Europe's import of energy from the Middle East accounts for a relatively limited proportion of its total energy imports, differing significantly from major Asian economies, which somewhat alleviates the direct pressure on the ECB. However, the systemic rise in global oil prices will still transmit to the Eurozone through inflation expectations and trade channels, meaning the ECB cannot remain detached.

UBS warns that if the Strait of Hormuz blockade extends through late April, US inflation could peak at 5%, marking one of the most severe oil supply shocks on record. Global energy inventories have already fallen to historic lows, and liquidity among low-income households is nearly exhausted, leaving their ability to withstand inflation extremely fragile. The Federal Reserve faces a dilemma squeezed by tariff shocks and energy-driven inflation, where historical patterns may no longer apply

- The ongoing blockade of the Strait of Hormuz is pushing the global economy toward severe inflationary pressures.  
- UBS warns that if the blockade continues until the end of April, U.S. inflation could peak at 5%, constraining the Federal Reserve's policy options and hindering economic recovery from past tariff impacts.  
- Additionally, the report highlights the vulnerability of low-income groups, whose ability to withstand price shocks has significantly diminished, with potential wider economic repercussions as inflation rises.

UBS: If 'Hormuz Disruption Persists', US Inflation Could Spike to 5% in Q2