Goldman Sachs Raises Oil Forecasts Amid Historic Supply Shock

Unprecedented Crisis Rocks Energy Markets

Global oil markets are experiencing what Goldman Sachs analysts are calling "the largest supply shock in the history of the global crude market" as the ongoing Strait of Hormuz crisis enters its fourth week. Iran effectively closed the Strait in the days following the joint U.S. and Israeli attacks on its leadership, cutting off 20% of global oil flows almost completely. The strategic waterway normally carries roughly 20% of the world's oil and 20% of its LNG , making any disruption a critical threat to global energy security.

In response to this crisis, Goldman Sachs has lifted its average price forecast for Brent crude in 2026 to $85 per barrel, up from $77 previously, and raised its West Texas Intermediate (WTI) forecast to $79 per barrel, compared with an earlier estimate of $72. The investment bank's revised outlook assumes oil shipments through the critical Middle Eastern chokepoint will operate at just 5% of normal capacity for a prolonged six-week period, representing a more severe and sustained disruption than previously expected.

Short-Term Price Surge Expected

The immediate impact on oil prices has been dramatic. Goldman Sachs sharply raised its oil price forecasts on Monday, expecting Brent to average $110 in March and April, up from a previous forecast of $98, or a 62% jump from the 2025 annual average. Current market conditions reflect this volatility, with Brent crude futures jumping as much as 0.73 per cent to an intraday high of $113.01 per barrel, while crude US WTI was at $101.50, up 3.32 per cent from the previous close.

The scale of potential supply losses is staggering. The bank has estimated that crude output losses in the Middle East could rise from 11 million barrels per day at present to a peak of 17 million barrels per day, with total cumulative losses expected to exceed 800 million barrels assuming a full recovery over four weeks after normal operations resume. To put this in perspective, there is no quick workaround at that scale.

Global Response and Strategic Implications

International energy authorities have mobilized unprecedented resources to address the crisis. IEA member nations on March 11 agreed to release a record 400 million barrels of oil from strategic stockpiles to address the supply disruption triggered by the Iran war. Fatih Birol, the executive director of the International Energy Agency, warned Monday that the situation in the Middle East is "very severe" and far worse than the two oil shocks in the 1970s as well as the impact of the Russia-Ukraine war on gas, put together.

The crisis has exposed fundamental vulnerabilities in global energy infrastructure. The high concentration of global production and spare capacity, largely centred in a small number of countries, is likely to drive a more sustained risk premium in oil prices, with analysts saying this dynamic is expected to encourage increased strategic stockpiling by governments and market participants, reinforcing upward pressure on longer-dated crude prices.

Economic Ripple Effects and Future Outlook

The oil price surge carries significant implications for the broader economy. Higher oil feeds directly into gasoline costs, heating bills, and goods that depend on energy-intensive supply chains, with Goldman estimating a sustained 10% rise in oil prices raises headline PCE inflation by about 0.2 percentage points while shaving 0.1 points off GDP growth. This creates a challenging environment for policymakers already grappling with inflation concerns.

While Goldman expects prices to moderate later in the year as supply normalizes, even after the Strait reopens, prices are not expected to fall quickly back to pre-war levels, as the shock has forced markets to reprice the concentration of oil production in the Persian Gulf, with that risk premium now baked into long-dated oil forwards, not just near-term contracts. The crisis may fundamentally reshape how global energy markets assess and price geopolitical risk, potentially ushering in an era of structurally higher energy costs as nations prioritize supply security over efficiency.