Goldman warns oil could stay above $100 as Iran war fuels fears of global downturn

Goldman Sachs has warned that oil markets are entering a prolonged period of stress, with risks to prices tilted firmly to the upside as the U.S.-Israeli war with Iran disrupts supply flows and threatens to spill over into the global economy.

The latest escalation pushed Brent crude above $119 per barrel, underscoring the severity of the shock after Iranian strikes hit energy facilities across the Gulf. The attacks have forced production shut-ins and heightened uncertainty around the Strait of Hormuz, a critical artery that carries roughly one-fifth of global oil and gas supply.

Goldman’s analysis suggests the market may be underestimating how long the disruption could last. Drawing comparisons with past crises such as the 1973 oil embargo, the bank said supply shocks of this magnitude tend to persist, keeping prices elevated even after hostilities ease. While its base case assumes flows begin to recover from April and prices ease into the $70 range by late 2026, it warned that structural damage to infrastructure or prolonged geopolitical tension could keep oil above $100 per barrel into 2027.

That prospect is already reverberating across global financial markets, where the surge in oil prices is stoking fears of a broader economic downturn. Higher crude costs feed directly into fuel, transportation, and manufacturing expenses, raising input costs for businesses and eroding consumer purchasing power. For import-dependent economies, the shock is even more acute, often triggering currency pressures and widening trade deficits.

Economists say the current trajectory raises the risk of a stagflationary cycle—where growth slows while inflation accelerates. The longer oil remains elevated, the more likely it is to choke off demand, dampen industrial output, and weigh on global trade. Goldman noted that if disruptions persist, Brent could even surpass its 2008 peak, a scenario that would significantly tighten financial conditions worldwide.

Against this backdrop, central banks are being forced into a difficult position. The inflationary impulse from energy prices is complicating what had been a gradual shift toward monetary easing. Policymakers who were previously considering rate cuts are now reassessing their stance, with some weighing the need for tighter policy to prevent inflation from becoming entrenched.

The U.S. Federal Reserve, the European Central Bank, and other major monetary authorities are expected to hold a more hawkish tone in upcoming meetings, even as growth risks mount. Higher interest rates, while aimed at containing inflation, could further slow economic activity—deepening the risk of a synchronized global slowdown.

Goldman also highlighted the potential for additional market distortions. A widening spread between Brent and West Texas Intermediate could emerge if the United States considers export restrictions to shield domestic consumers, a move that would tighten global supply further. At the same time, while OPEC retains spare capacity, the bank cautioned that deploying it may not fully offset losses, particularly if infrastructure damage or security concerns limit production.

The crisis is exposing deeper structural vulnerabilities in the oil market. Years of underinvestment in upstream capacity, combined with rising geopolitical fragmentation, have reduced the system’s ability to absorb shocks. As a result, even partial disruptions are having outsized effects on prices and volatility.

Thus, the stakes are rising quickly for governments and policymakers. Elevated energy costs are not only a threat to growth but also a political risk, as households grapple with higher fuel and food prices. In emerging markets, where energy subsidies are often used to cushion consumers, fiscal pressures could intensify sharply.

In essence, the oil shock is no longer just a commodity story—it is becoming a macroeconomic one. With supply risks lingering, central banks on alert, and markets increasingly jittery, the trajectory of crude prices may now dictate the pace and stability of the global economic outlook in the months ahead.