Goldman Sachs has recently updated its evaluation of geopolitical risks in the oil markets, indicating that Brent crude prices may increase by around $10 per barrel as a result of conflict in West Asia.
The intensification of hostilities between Israel and Iran has unsettled global oil markets, prompting major financial institutions like Goldman Sachs to predict a notable increase in oil prices. Analysts indicate that the uncertainty regarding regional stability, particularly with the possible involvement of the United States, is likely to introduce volatility into oil pricing, which had recently achieved a state of relative calm.
Geopolitical unrest influences price forecasts
Goldman Sachs has recently updated its evaluation of geopolitical risk in oil markets, indicating that Brent crude prices could rise by around $10 per barrel due to the conflict in West Asia. This would elevate Brent above the $85 per barrel threshold, increasing from levels in the mid-$70s, as reported by Irina Slav of Oilprice.com. The bank pointed out that if Iranian oil supply were to be disrupted more significantly, prices could escalate even further, potentially surpassing $90 per barrel.
Specifically, Goldman emphasized the vulnerabilities in oil transportation through critical chokepoints such as the Bab el-Mandeb Strait, which has previously been targeted by Yemen’s Houthi rebels. These flashpoints highlight the broader risks to oil infrastructure in a region characterized by high volatility.
The prospect of US involvement heightens market anxiety
Compounding market apprehension is the possibility of the United States entering the conflict. President Donald Trump has hinted at the idea of US intervention, stating vaguely, “I may do it. I may not do it.”
While Trump has recognized internal political opposition to renewed military engagement in West Asia, citing criticism from Republican figures like Steve Bannon, he has also underscored the threat posed by a nuclear Iran as a potential rationale for action.
Consequently, traders are taking a cautious approach. Oil prices initially experienced a slight decline amid the uncertainty, with Brent crude settling at $76.56 per barrel and West Texas Intermediate (WTI) at $75.22, as they await clearer signals regarding US policy.
The escalation of war has resulted in rising prices.
The situation on the ground has rapidly evolved. As of June 19, oil prices increased by nearly 3 percent following Israel’s direct attacks on Iranian nuclear facilities and Iran’s retaliatory missile strikes, which included an assault on an Israeli hospital. Brent crude settled at $78.85 per barrel, marking its highest level since January, while WTI rose to $77.20.
These attacks signify a significant escalation, eliminating any notions of a brief conflict. Israeli Prime Minister Benjamin Netanyahu declared that Iran’s leaders would “face the full consequences,” while Tehran cautioned against the involvement of foreign nations—implicitly referring to the US—in the conflict.
Rory Johnston, an analyst and the founder of Commodity Context, indicated that market sentiment is shifting towards the likelihood of US involvement in the conflict, which would greatly increase the risks to oil infrastructure and supply routes.
Strategic chokepoints and oil supply are at risk.
Iran’s position as the third-largest oil producer in OPEC places it at the center of this crisis. With a production capacity of around 3.3 million barrels per day, Iran is a vital supplier—especially to China, which consumes the majority of its 2 million daily barrels of crude exports.
More importantly, the Strait of Hormuz—a narrow passage adjacent to southern Iran—acts as the conduit for 18 to 21 million barrels of oil and oil products each day. RBC Capital analyst Helima Croft highlighted that this waterway could become a primary target if Iran perceives a significant threat. She cautioned that assaults on tankers and energy facilities would likely ensue following any US military engagement.
JP Morgan further suggested a worst-case scenario in which the conflict expands throughout the wider region, potentially leading to the closure of the Strait. In such a situation, oil prices could soar to between $120 and $130 per barrel.
Risk premiums and market sentiment
Goldman Sachs has reaffirmed its stance that a geopolitical risk premium of approximately $10 per barrel is now justifiable, given the reduced availability of Iranian oil and the potential for broader supply disruptions. Even if tensions were to ease, the firm believes that Brent prices are unlikely to revert to the low $60s observed recently.
In a similar vein, Barclays has cautioned that if half of Iran’s oil exports were to cease, Brent prices could reach $85 per barrel. A more extensive conflict could drive prices beyond the $100 mark.
Phil Flynn, an analyst at Price Futures Group, remarked that the market had been lulled into a state of “complacency” that has now been disrupted. “The market has been underestimating geopolitical risk,” he stated, contending that this recent escalation will maintain elevated prices as long as uncertainty persists.
Temporary or sustained price hike?
Despite the recent price surge, some analysts argue that any increase is likely to be temporary. DBRS Morningstar, in a report issued on Thursday, warned that rising oil prices could negatively impact the global economy by exacerbating tariff-related pressures and dampening demand. They believe that once the conflict subsides, the war premium would diminish, leading to a decline in oil prices.
Nevertheless, the possibility of extended instability keeps the market vigilant. With no definitive exit strategy from either Israel or Iran, and Washington’s decision on intervention still undecided, investors are preparing for further turmoil.
Opec+ response and the global oil balance
In light of the escalating tensions, Russian Deputy Prime Minister Alexander Novak has advised the Opec+ coalition against overreacting. During an economic forum in St Petersburg, Novak suggested that oil producers should adhere to their current plans to boost supply in response to increasing summer demand. His remarks aimed to reassure the markets and prevent further price volatility.
However, it remains uncertain whether an increase in Opec+ output will be sufficient to stabilize prices in light of the disruptions caused by a regional conflict. Currently, market dynamics are influenced more by geopolitical risks than by the traditional principles of supply and demand.
A market on the brink
The conflict between Israel and Iran signifies a potential turning point for global energy markets. Analysts from firms such as Goldman Sachs and JP Morgan are now incorporating a war risk premium into their assessments, as oil prices are already on an upward trajectory and could potentially reach triple digits if the situation escalates.
The possibility of US military involvement could significantly alter the current balance, not only affecting Iranian exports but also threatening crucial shipping routes. While some analysts argue that any price increase would be temporary, the interplay of strategic vulnerabilities and political uncertainties indicates that volatility is likely to continue in the near future.
The stabilization of oil prices or their rise above $100 per barrel may ultimately hinge not only on developments on the battlefield but also on forthcoming decisions from Washington.
