Oil Market Impacts from Iran

Strikes in Iran have reignited concerns about oil supply, inflation pressure, and cross-asset volatility. How significant are these disruptions and what are the implications for the global economy? I'm Allison Nathan, and this is Goldman Sachs Exchanges.

Today I'm sitting down with my colleague in Goldman Sachs Research, Daan Struyven, Co-Head of Global Commodities Research and the Head of Oil Research.

Daan, welcome back to Exchanges. Thank you, Allison.

Daan, before we turn to markets, we just want to acknowledge first the very real human cost of any escalation in the region. Our focus here today is strictly on the economic and market implications.

So with that in mind, Daan, the last time we had you on this program, we were talking about Venezuela and the oil market impacts of those developments. But clearly we have had the US and Israel launch over the weekend a military campaign against Iran. It has killed Iran's Supreme leader, Ayatollah Ali Khamenei. So how significant are these developments?

Most importantly, thinking about what is actually happening on the ground in terms of oil infrastructure and supply. Yeah, so the developments are definitely significant, especially because flows through the Strait of Hormuz, which in normal times accounts for about one-fifth of global oil supply, are down very sharply with only some Chinese ships

reportedly going through the Strait. And as a result, I think the rise in oil prices, up 8% since Friday, up 25% year to date, I think that increase is appropriate in light of the rise of the geopolitical risks to energy supply. When we think about the actual disruptions we're seeing now, are you actually getting confirmation that oil infrastructure has been

disrupted in some of these other countries, either from the port side of things, fields, refineries. Talk us through it. Yeah. So in the oil market, the impact is the most

fields, refineries. Talk us through it. Yeah. So in the oil market, the impact is the most significant in terms of export flows with a very sharp drop in volumes coming through the Strait of Hormuz, not because the Strait is completely shut, but because shippers, oil producers,

are going to a wait-and-see mode because they have seen reports of three ships that have been damaged and because insurance premia have skyrocketed. In terms of actual production as opposed to exports, there are some reports that production in Iraq is down somewhat, around 0.2 million barrels per day. Saudi Arabia's largest refined products refinery is apparently also shut,

per day. Saudi Arabia's largest refined products refinery is apparently also shut, worth around 0.6 million barrels per day. So in the oil market, the impact is a lot bigger on flows, on export than on production, but on the natural gas side, the largest LNG export plant in the world from Qatar is shut at the moment. Interesting. And I think that is an interesting

point you make, Daan, because you think about the Strait of Hormuz closure, we talk about that a lot. As you said, right now it in itself is not being shut, but people are voluntarily deciding not to send flows through there because of the risk involved.

Absolutely. And we are seeing the broader region actually involved as well in some of these developments. How is that impacting supplies and infrastructure for energy around the region? I think that's very significant and a major difference with the tensions we saw last summer. With strikes from Iran now also having hit assets

in the GCC, Gulf Corporation Council countries, such as Saudi Arabia and the UAE. There is now a tail risk where you could see not only damage to export flows, but potentially also to production with Saudi Arabia being the largest crude exporter in the world. And I think the rise

in oil prices does reflect some probability that the conflict may last or may extend and broaden.

So if we think about how this all impacts the oil markets over the short to medium term, Daan, walk us through the scenarios you are potentially looking at and what is your base case today?

Yeah, so our base case assumes no sustained supply disruptions, and that's why we have maintained our base case energy price forecasts, but the upside Which are, by the way, sorry, clarify for us. Yeah, our base case is that Brent, which is now currently around 78 will bottom this cycle at 60 by the end of this year in the fourth quarter,

assuming no sustained supply disasters. But clearly the upside risks are very significant.

The upside risk from a sustained closure of the Strait of Hormuz could be very large. And

what one key point I want to make is that the impact on prices is likely non-linear a convex function of how long the supply disruption lasts. So to put some numbers on this, if you see a 100 percent full closure of the Strait for about a month and if we can use the

roughly 4 million barrels per day of estimated spare pipeline capacity to bypass the Strait, our models point to $12 of upside to prices. Now, if the disruption is significantly shorter than one month, a few days, a week, the impact may be disproportionately smaller

because crude could simply be stored on land in those producing countries in the Middle East, and the oil would still be delivered down the road. So essentially deliveries would be delayed, but no significant effect on cumulative supply available to the global oil markets.

In contrast, if the conflict lasts, if the disruption lasts longer, if you run out of storage facilities, if production has to be shut in and if the Strait of Hormuz is closed for a very long time, you cannot draw inventories forever, and the market may have to rebalance by incentivizing prices to such high levels that you generate demand destruction. And

we typically find that in oil markets to generate substantial demand destruption, prices may have to rise into triple digit territory. So the length of the disruption to the Strait of Hormuz is the single most important variable to watch now, right now in oil markets.

But just to clarify, all those numbers you gave were relative to your base case.

That's right. When we think about the 8% increase in oil prices we've seen over the weekend, what is that pricing in at this point in terms of disruptions?

Great. We think that the fair value for Brent at the moment, assuming no sustained supply disruptions, is around $65. With the market price at $78, the market is essentially pricing an $13 per barrel risk premium, which on our model, corresponds essentially to the market pricing in a full closure of the Strait of Hormuz for around four

weeks. If the market were 100% confidence that a Strait of Hormuz were to be shut for four weeks,

weeks. If the market were 100% confidence that a Strait of Hormuz were to be shut for four weeks, that's essentially where the price would be as clients can now see on their screen. Of course, in reality, traders need to think about a whole range of scenarios, including shorter disruptions, but also escalation scenarios and longer disruptions. Right? But the market does price a pretty meaningful disruption at this point. But there's a lot more upside,

as you just said. If we were to see the type of disruption that the market is expecting right now, how painful would that be for the global economy? It could be pretty significant if the disruptions are sustained and large. One rule of thumb for the US and European economy for instance

is that every 10% increase include oil prices that sustained, raises headline inflation about three tenths of a percentage point, and therefore reduces disposable income after adjusting for prices also by around 0.3%. Now I do think the 2022 experience is an

interesting one, both the US and Europe avoided a recession despite very sharp increases in prices because there were several other tailwinds to the economy and the underlying fundamentals in the private sector were healthy. The base case from our economist this year is not too dissimilar.

Healthy consumers, healthy private sector, supportive financial conditions, tax cuts in the US. And so I think it would take a relatively large and sustained increase in energy prices

the US. And so I think it would take a relatively large and sustained increase in energy prices to alter that still benign base case into a more adverse outcome for the global economy.

Right. We have the benign economic backdrop right now and we have the bonus of spare capacity on the supply side. That was what was driving a lower oil price forecast.

With one key caveat. That spare capacity is concentrated in the Middle East, and so as long as the Strait of Hormuz is closed, you cannot really physically deploy that spare capacity because those barrels largely, the spare capacity is largely concentrated in Saudi Arabia, the UAE and Kuwait. Most of these barrels typically flow through the Strait to reach global markets.

So they're trapped. Whenever we have these type of developments, which thankfully are not very often, we often hear about the Strategic Petroleum Reserve, which supposedly is here just for this type of scenario where you might have extreme disruption. When does that come into play? Is that something on your mind right now? Yes. I think that if we were to see a sustained

play? Is that something on your mind right now? Yes. I think that if we were to see a sustained supply disruption and significantly higher oil prices, this would be a textbook case to deploy the Strategic Petroleum Reserves, whether it's in the US, other developed markets or even China, which has built up a very substantial strategic petroleum reserve over the last few years.

That said one Department of Energy official did tell the Financial Times over the weekend that at the moment this is not really being discussed at all. It may reflect an anticipation or a base case from DOE officials that the conflict may not be very long lasting, and the other key point to

make is the level of the US Strategic Petroleum Reserve is significantly lower than before 2022.

We now have around 415 million barrels in the US SPR. That is more than 200 million barrels lower than before the start of the 2022 energy crisis. Right, so it's a cushion, but not as large of a cushion. And right now there's not a lot of talk about using it or needing to use it but that could

cushion. And right now there's not a lot of talk about using it or needing to use it but that could be a potential buffer as well to the economy. When we are also in these type of environments, we start talking again about safe haven assets. Daan, I think another recent conversation we've been having is gold. How is gold reacting to this? Are we seeing the safe havens responding?

I think the safe havens are performing well today in financial markets, whether it's gold or some of the safe haven currencies, like the US dollar. Our highest conviction recommendation continues to be gold, both because of an attractive base case where this diversification from central banks into gold continues and then critically we think gold is a very helpful hedge against geopolitical

shocks against institutional macro policy shocks. And then if you combine it with energy, which hedges you against more traditional negative supply shocks, as an investor, you're pretty well hedged against inflation shocks that that can weigh on the performance of equity bond portfolios. So what are you watching,

Daan? A lot of uncertainty as these developments continue, what are you most focused on?

Daan? A lot of uncertainty as these developments continue, what are you most focused on?

So on the oil flow specific side, laser focused on flows through the Strait of Hormuz. What are

we hearing from the shippers, from the insurers? What are the satellite data showing us. When can

we expect a potential recovery in volumes? And then more broadly, any signals about the potential length of the conflict. Signals that could suggest the conflict could last longer include potential communication from the US administration that the goal of this operation is a broad and ambitions

one such as, for instance, a regime change. In contrast, if the rationale is mostly motivated by more narrow military goals, like reducing missile capacity, reducing nuclear capacity, then that may be a signal that the conflict may be somewhat shorter. Another key thing to watch

is who will be in charge in Iran. If you were to see a more reformist leader taking charge, that could also be an off-ramp and a route to a less extended conflict.

So a lot to watch. Thank you so much for joining us, Daan, on short notice.

Thanks a lot Allison. Thank you for listening to this episode of Goldman Sachs Exchanges, which was recorded on Monday, March 2nd, 2026. I'm Alison Nathan.