Goldman Sachs: While Iran War Triggers Oil Shock, It Won't Cause Widespread Supply Chain Crisis

Goldman Sachs recently stated that the war launched by the United States and Israel against Iran is triggering a wave of oil price shocks, but it will not develop into a global supply chain crisis like during the COVID-19 pandemic.

Since the attack by the US and Israel in late February, international oil prices have surged significantly, raising concerns that this conflict could push up inflation and disrupt global trade.

During Monday’s European trading session, WTI crude oil fell below $95 per barrel, down 4.41% intraday. Brent crude oil also declined over 1%, trading at $101.85 per barrel. Since the beginning of the year, both benchmarks have risen about 70%.

However, Goldman Sachs economists pointed out in a report that the current shock is markedly different from the one that drove global inflation to soar between 2021 and 2022.

They wrote, “The current impact is mainly concentrated in the energy sector, whereas the energy price increases in 2022 were just part of a broader global supply chain crisis and inflation wave at that time.”

Goldman estimates that the surge in oil prices could reduce global GDP by about 0.3 percentage points over the next year and push overall inflation up by approximately 0.5 to 0.6 percentage points. The bank currently forecasts global economic growth at 2.6%, below the 2.9% predicted before the outbreak of war; it also expects the overall inflation rate in Q4 to be 2.9%.

The bank believes that if the conflict continues until April and causes the Strait of Hormuz to be disrupted for two months, Qatar and Kuwait’s GDP could shrink by 14% this year, marking the most severe economic recession for these countries since the early 1990s.

One reason Goldman mentions for the limited impact on widespread supply chain disruptions is that, aside from oil and natural gas, the global economy’s reliance on trade with the Middle East is relatively low.

Goldman economists pointed out that non-energy trade between the world and Gulf countries accounts for only about 1% of global trade, which limits the risk of conflict spreading through supply chains to the global economy.

They wrote, “In comparison, the disruption of trade activities in East Asia after the pandemic affected over 20% of global trade, meaning the impact of the Iran war on supply chains will be much smaller than that post-pandemic wave.”

Even in industries where Gulf countries are dominant exporters—such as certain chemicals and metals—the overall share of these products in the global economy remains small.

More importantly, these inputs are generally not considered “critical bottlenecks” for global manufacturing. For example, sulfur, nitrogen, and ammonia are widely used in fertilizer production to boost agricultural productivity, but they are not absolutely irreplaceable key inputs. If supplies tighten, these products can be rationed or substituted.

Helium was initially seen as a potential risk because it is difficult to replace and is widely used in MRI machines, semiconductor manufacturing, and aerospace systems. However, Goldman economists stated that long-term supply contracts and existing inventories will help buffer potential supply disruptions.

They believe that the products most likely to be affected in the industrial sector might be methanol. Methanol is a chemical used to produce acetic acid, which is an important raw material for manufacturing adhesives, solvents, and paints. Iran accounts for nearly one-fifth of global methanol production capacity; if this supply disappears, it could trigger chain reactions in downstream markets.

Overall, global trade flows remain largely normal. Goldman economists noted that shipping data shows that since the outbreak of war, freight rates for non-oil tankers have actually slightly declined. Meanwhile, the increase in air freight costs has had a very limited impact on global inflation, expected to add less than 0.05 percentage points.