The escalating military conflict involving Iran is disrupting global markets faster than anticipated, with UBS analyst Bhanu Baweja warning that the Strait of Hormuz's closure poses the biggest threat to current trades. Baweja emphasized that even partial oil flow impairment for several weeks could severely impact oil and global markets, as the region's infrastructure faces unprecedented risks compared to recent Israel-Iran confrontations.

Tanker traffic has already sharply declined, and while the oil market was expected to remain in surplus through 2027, Baweja noted that surplus becomes meaningless if oil cannot reach end markets. The UBS report highlights that past geopolitical oil shocks typically normalized within four to five months, but today's elevated equity valuations make markets more vulnerable. The S&P 500 currently trades at 22.2 times forward earnings, significantly higher than the 14.3x median during prior shocks.

Several popular equity rotations now face reversal risk, including large-cap to small-cap, growth to value, and high-quality to low-quality trades. Fixed income steepener consensus and dollar weakness against emerging markets are also under pressure. UBS identifies the duration of shipping disruptions in the Strait of Hormuz as the key variable markets must monitor.