Topline
Oil prices may rise to multiyear highs if Iran retaliates on U.S. strikes by blocking a crucial chokepoint for global energy, warned Goldman Sachs, throwing a new wrench in the multiyear fight against inflation.
Iran plays a crucial role in global oil flows. Pictured is the Port of Kharg Island Oil Terminal.
Key Facts
Prices for international oil benchmark Brent crude were flat at $77 per barrel by 10 a.m. EDT during a choppy Monday session, the first day of trading for the commodity since the U.S. struck Iran.
That brings the two-week increase for Brent prices to 15%, but much further pressure on oil prices could be in store, a Goldman group led by Daan Struyven, the investment bank’s co-head of global commodities research warned in a note to clients.
Brent prices could spike to more than $110 per barrel should Iran move to close the critical Strait of Hormuz, predicted Goldman, modeling out a scenario in which oil flows through the shipping route decline 50% for at least one month.
That would mark a 30% increase from Monday’s already elevated price for the benchmark, sending Brent to its highest level since July 2022, as the U.S. and its allies sanctioned oil from top three producer Russia after it invaded Ukraine.
What Is The Strait Of Hormuz?
The Strait of Hormuz is the sole water passageway linking the Persian Gulf to the open ocean. It’s a critical route for the energy-rich region, and the equivalent of about 20% of global oil consumption moved through the strait in 2024, according to the U.S. Department of Energy. “Very few alternative options exist to move oil out of the strait if it is closed,” the Department of Energy wrote in a blog post last week. Iranian state media indicated following the U.S. strikes the country’s parliament supported closing the passageway. At least two super tanker oil-carrying ships headed for the strait turned around Monday, according to Reuters. Iran is the world’s ninth-largest oil producer, but its proximity to the Strait of Hormuz, which also handles about half of exports from the largest non-U.S. producer Saudi Arabia, gives the country significant influence over Middle East energy.
Will Higher Oil Prices Lead To Higher Inflation?
Yes. According to J.P. Morgan economists, who cautioned last week that sustained Brent prices over $75 this summer would contribute a 2% jump in global consumer price index inflation. The prospect of higher energy prices is a source of concern for the U.S. as it navigates economist warnings of a tariff-driven uptick in inflation.
Chief Critic
President Donald Trump issued a warning to oil producers in a Monday social media post, writing: “EVERYONE, KEEP OIL PRICES DOWN. I’M WATCHING! YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!”
Crucial Quote
In a perhaps surprising development, investor reaction in bond and equity markets was muted Monday despite the heightened geopolitical risk. The S&P 500 U.S. stock yardstick rose about 0.3%, while yields for the benchmark 10-year Treasury note slipped four basis points to below 4.35%, indicating a slight rally for bonds. “In terms of what this all means for markets going forward, it’s really all about whether the Iranian regime weaponizes oil,” Deutsche Bank strategist Jim Reid wrote Monday.
Further Reading
