KGI Securities (Thailand) (KGI) has upgraded its outlook for the Energy sector from ‘Neutral’ to ‘Overweight’, citing higher crude prices in the wake of the U.S.-Israel war with Iran that erupted on February 28, 2026. The brokerage maintains its Dubai crude price assumption at US$75 per barrel for 2026 and US$70 per barrel for 2027, with a long-term forecast of US$70 per barrel.
Crude markets have seen significant volatility, with prices surging following the outbreak of the U.S.-Israel war with Iran as transport through the crucial Strait of Hormuz has been severely hampered. Vessel traffic has reportedly plummeted by approximately 95% after threats from Iran’s Islamic Revolutionary Guard Corps, which warned of attacks on vessels attempting to transit the waterway and said ships linked to the U.S., Israel, Europe, and their allies would be denied passage.
As a result, roughly 14-15 million barrels per day (MBD) of global crude supply are at risk, with Gulf producers already forced to curtail output by an estimated 6.7 MBD. This includes cutbacks from Iraq (about 2.9 MBD), Saudi Arabia (2.0-2.5 MBD), the UAE (0.5-0.8 MBD), and Kuwait (0.5 MBD). However, Saudi Arabia and the UAE retain some flexibility, as they can export oil via pipelines that bypass the Strait— notably Saudi Arabia’s 5 MBD East-West pipeline to Yanbu and the UAE’s 1.8 MBD pipeline to Fujairah.
To ease market tensions, emergency measures have been implemented. The International Energy Agency (IEA) approved a release of 400 million barrels from strategic reserves, including 172 million barrels from the U.S. over a 120-day window. Additionally, the U.S. granted a 30-day sanctions relief for Russian oil cargoes already at sea, lasting from March 12 to April 11, 2026, providing an extra supply temporarily.
KGI’s scenarios highlight potential earnings impacts for the energy sector based on the length and severity of the Hormuz disruption. 1) If the war lasts about one month with the Strait closed for two weeks, Dubai crude prices are expected to average US$75/bbl in 2026. 2) Should the conflict persist for around three months and keep the Strait closed for one month, prices could rise to US$85/bbl. 3) In a worst-case, six-month scenario with three months of straight closure, prices could spike to US$105/bbl in 2026.
On the refinery front, supply disruptions are widening margins significantly, particularly in the first quarter of 2026. These are supported by drone attacks on Middle Eastern refineries and reduced runs at Asian refineries impacted by Hormuz disruptions. Jet and diesel spreads have climbed sharply quarter-on-quarter, though gasoline spreads have fallen due to the resumption and ramp-up at Nigeria’s Dangote refinery.
Meanwhile, several Middle Eastern refineries have suspended operations since the beginning of the military conflict, including major facilities in the UAE, Saudi Arabia, Bahrain, and Oman. Should the closure of the strait persist, refiners most reliant on Middle Eastern crude will be hardest hit.
The petrochemical sector is also deeply affected by Strait of Hormuz disruptions, as the strait handles about 37% of global seaborne naphtha trade—key for Asian olefins production. This tightness has driven up polymer spreads, with HDPE and PP spreads rising 37% and 36% month-on-month, respectively, in early March. Gas-based olefins producers, such as PTTGC, are less exposed to naphtha disruptions and stand to benefit more, while Asian PET spread surged 55% quarter-on-quarter, aided by plant shutdowns, pre-holiday demand, and the seasonal summer peak.
In the upstream energy segment, surging energy prices are forecasted to boost earnings, with Dubai crude rising to US$99/bbl (+46% MoM) and Newcastle coal climbing to US$129/ton (+11% MoM) in early March. This benefits producers like PTTEP and BANPU. PTT may also see greater earnings from its subsidiaries, although potential government interventions to cushion consumers could temper upside gains.
For refiners, the Singapore gross refining margin (GRM) has soared to US$14.5/bbl (+181% MoM) in early March. However, Thai refiners’ exposure to Middle Eastern crude differs significantly, with TOP, SPRC, and IRPC more at risk due to high reliance on Middle East supplies—contrasted by BCP and PTTGC, which are less exposed.
Petrochemicals firms such as PTTGC, with a more balanced feedstock mix (44% ethane, 41% LPG, 15% naphtha in 4Q25), are positioned to better weather naphtha supply shocks. Producers with a global footprint, such as IVL, are also favored due to their operational flexibility across different regions.
In the retail oil segment, the Thai government’s measures to freeze diesel retail prices at THB 29.94/liter until March 16 may pressure marketing margins for retailers like OR and PTG. However, ongoing support from the Oil Fuel Fund and potential extensions of the freeze could soften the impact. Additionally, the Energy Ministry’s move to raise the biodiesel blending quota from B5 to B7 starting March 14 is likely to spur demand for biodiesel, providing a positive for biofuel producers such as BBGI.
