The U.S.-Iran war has delivered what Goldman Sachs now sees as the largest oil supply shock on record.
Persian Gulf exports, as tracked by vessel count data, have fallen to roughly 3% of normal levels at the Strait of Hormuz — a disruption that dwarfs even the 1973 OPEC embargo and the 1990 Gulf War in terms of the immediate hit to flows.
Goldman’s commodity research team, led by analyst Daan Struyven, upgraded its Brent crude price forecast on Wednesday, citing a longer assumed disruption and a more complex global policy response than their initial models projected.
“Our commodity strategists now expect Brent to average $98 in March and April—up 40% from the 2025 average— before falling back to $71 by 2026 Q4,” Goldman Sachs said.
On Thursday morning, front-month futures on the West Texas Intermediate light crude – as tracked by the United States Oil Fund (NYSE:USO) – traded 6% higher near $95 a barrel. That’s after the International Energy Agency (IEA) announced an emergency release of 400 million barrels from crude reserves – the largest in history.
The Largest Oil Supply Shock on Record
Goldman’s analysis shows the current hit to Persian Gulf exports at 16.2 mb/d on a four-day moving average basis, a figure the bank describes as the largest supply shock on record, exceeding the production losses seen during the 1973 oil embargo, the 1980 Iran-Iraq War, and the 1990 Iraqi invasion of Kuwait.
“Due to uncertainty around the duration of the largest oil supply shock on record… oil prices are likely to trend higher over that period until the market gains confidence a lengthy disruption is unlikely,” Struyven said.
The near-term price picture hinges on a single variable: how long flows remain depressed. Goldman assumes the Strait begins recovering on March 21. But every day that assumption is wrong adds non-linear upside to prices.
The bank estimates that daily oil prices could exceed the 2008 peak — above $145 per barrel — if Strait flows remain at current levels through the end of March.
What This Means For The US Economy
When oil prices rise due to geopolitical supply risk rather than strong demand, it typically signals an inflation shock that central banks cannot easily control.
Goldman Sachs estimates that a sustained 10% increase in oil prices raises headline PCE inflation by about 0.2 percentage points, while shaving roughly 0.1 percentage points from GDP growth.
In other words, Higher oil prices simultaneously push inflation up and economic growth down.
That combination — sometimes called an energy-driven inflation shock — creates one of the most difficult environments for monetary policy.
Goldman’s U.S. economics team, translated the oil shock directly into macro forecast changes.
The bank raised its December 2026 headline PCE inflation forecast by 0.8 percentage points to 2.9% and its core PCE forecast by 0.2 percentage points to 2.4%.
GDP growth for 2026 was revised down 0.3 percentage points to 2.2% on a Q4/Q4 basis, or 2.6% on a full-year basis.
In their upside oil scenario — assuming a full month of Hormuz disruption — Goldman sees headline PCE peaking at 4.5% in the spring before settling at 3.3% by year-end, with core PCE reaching 2.5%.
Their 12-month recession probability was raised 5 percentage points to 25%, which the bank notes is 10 percentage points above the long-term unconditional average.
The Fed Is Running Out Of Room To Move Early
The inflation upgrade has direct consequences for Federal Reserve policy as rising oil prices could complicate the path toward rate cuts.
Goldman pushed back its first expected rate cut from June to September, with a second cut in December, keeping the terminal rate forecast at 3–3.25%.
The bank maintains that a sufficiently rapid deterioration in the labor market could still unlock earlier cuts — the February payrolls weakness kept that door ajar — but argued that oil-driven inflation pressure alone is unlikely to hold the Fed back if growth and employment deteriorate sharply enough.
Bottom line, a prolonged Hormuz closure has no historical precedent to benchmark against, no reliable demand-destruction model to anchor, and a strategic reserve buffer that is already described as thin.
The market is starting to price in a countdown.
Photo by Below the Sky via Shutterstock
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