Strikes in Iran have reignited concerns about oil supply, inflation pressure, and cross-asset
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, Dom Strayvin, co-head
of global commodities research, and the head of oil research.
Dom, we'll come back to exchanges.
Dom, 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, Dom, 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 U.S. in Israel launch over the weekend, a military campaign
It has killed Iran's supreme leader Ayatollah Ali Hamaneh.
So how significant are these developments most importantly thinking about what is actually
happening on the ground in terms of oil infrastructure and supply?
Yes, so the developments are definitely significant, especially because flows through the
straightover moves, 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 straight.
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 geopolitical risks to energy
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?
Yes, so in the oil market, the impact is the most significant in terms of export flows,
with a very sharp drop in volumes coming to the straightover moves, not because the
straight is completely shut, but because shippers or producers are going to await and
sea mode, because they have seen reports of three ships that have been damaged and
because insurance premium 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, 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
Interesting, and I think that is an interesting point you make, Don, because you think about
the straightover moves 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.
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 is very significant, and a major difference with the tensions we saw last summer,
which strikes from Iran now also having hits 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 termed
on, walk us through the scenarios you're potentially looking at, and what is your base
Our base case assumes no sustained supply disruptions, and that's why we have maintained
our base case energy price forecasts, but the upside to price is-
Which are, by the way, sorry, certified for us.
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 disruptions, but clearly the upside risks are very significant.
The upside risk from a sustained closure of the state of our moves could be very large,
and one key point I want to make is that the impact on prices is likely nonlinear, a convex
function of how long the supply disruption lasts.
So to put some numbers on this, if you see 100% full closure of the straight for about
a month, and if we can use the roughly 4 million barrels per day of estimated spare pipeline
capacity to bypass the straight, our models point to 12 dollars 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 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 market.
In contrast, if the disruption lasts longer, if you run out of storage facilities, if production
has to be shut in, and if the straight overmoose is closed for a very long time, you cannot
draw even trees 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 destruction, prices may have to rise into triple digit territory.
So the length of the disruption to the straight overmoose is the single most important variable
to watch right now in oil markets.
But just to clarify, all those numbers you gave were relative to your base case.
So if the market price is 8% increase in oil prices we've seen over the weekend, what
is that pricing in at this point in terms of disruptions?
We think that the fair value for Brent at the moment, assuming no sustained supply disruptions,
With a market price at 78, the market is essentially pricing in $8.13 per barrel risk premium, which
on our model's corresponds essentially to the market pricing in a full closure of the
straight overmoose for around four weeks.
Is the market worth 100% confidence that a straight overmoose were to be shut for
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 the whole range of scenarios, including
shorter disruptions, but also escalation scenarios and longer disruptions.
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?
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 all prices that sustained, raises headline inflation about three tenths of a percentage
points, and therefore reduces disposable income after adjusting for prices also by around
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.
Or the base case from our economists this year is not to dissimilar.
Healthy consumers, healthy private sector, supportive financial conditions, tax cuts
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.
We have the benign economic backdrop right now, and we have the bonus of spare capacity
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 straightover moose is closed, you cannot really physically deploy that spare capacity
because those barrels largely, that spare capacity is largely concentrated in Saudi Arabia,
the UAE and Kuwait, most of these barrels typically float through the straight to reach
Whenever we have these type of developments, which thankfully are not very often done, we
often hear about the strategic petroleum reserve, which supposedly is here just for this
type of scenario where you might have extreme disruption.
And is that common to 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
over prices, this would be a textbook case to deploy the strategic petroleum reserve.
So 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 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. Don, 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 where it reads 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 your political
shocks against the 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 deflation shocks that can weigh on the performance of equity bond portfolios.
So what are you watching Don? 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 to the
state of our moves. 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 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 abroad and ambitions one such as for instance 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 arrive to a less extended conflict.
So a lot to watch. Thank you so much for joining us on short notice.
Thanks a lot Alison. Thank you for listening to this episode of Goldman Sachs exchanges,
which was recorded on Monday, March 2nd, 2026. I'm Al Senathe.
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