The Iran war is driving an oil shock, but not a broad supply chain crisis, according to Goldman Sachs.
Oil prices have surged since the US and Israel’s attack on Iran, raising concerns that the conflict could fuel a wave of inflation and disrupt global trade.
On Monday, international benchmark Brent crude oil futures were trading around $105 per barrel in early trade, while US West Texas Intermediate was around $99.50 per barrel. Both benchmarks are up more than 70% so far this year.
However, the current shock differs sharply from the one that fueled the global inflation surge in 2021 and 2022, Goldman’s economists wrote.
“Today’s shock is more narrowly concentrated in the energy sector, whereas the energy price increases in 2022 were only one aspect of a much broader global supply chain crisis and inflation surge.,” they wrote.
Goldman estimates the surge in oil prices could reduce global GDP by about 0.3% and raise headline inflation by roughly 0.5 to 0.6 percentage points over the next year. The bank now expects global growth of 2.6%, down from its 2.9% forecast before the war, and headline inflation of 2.9% on a fourth-quarter basis.
Limited non-energy trade with Gulf economies
One reason is that global trade exposure to the Middle East is relatively small outside of oil and gas.
Non-energy trade with Gulf economies accounts for only about 1% of global trade, limiting the risk that disruptions ripple through global supply chains, according to Goldman’s economists.
“As a point of comparison, the post-pandemic shutdowns to China and East Asian trade affected over 20% of global trade, suggesting that supply chain disruptions from the war in Iran will be much more limited than those after the pandemic,” they wrote.
Even in industries where Gulf countries dominate exports — such as certain chemicals and metals — the products themselves account for only a small share of the global economy.
More importantly, these inputs are not typically critical chokepoints for global manufacturing.
Sulfur, nitrogen, and ammonia, widely used in fertilizers, help boost agricultural productivity but are not strictly essential and could be rationed if supplies tighten, according to Goldman’s economists.
Helium initially appeared to be a potential risk because it is a hard-to-substitute input used in MRI machines, semiconductor manufacturing, and aerospace systems.
However, long-term supply contracts and existing inventories should help cushion disruptions, Goldman economists wrote.
The most likely industrial risk may come from methanol, a chemical used to produce acetic acid, a key ingredient in adhesives, solvents, and paints. Iran accounts for nearly one-fifth of global production capacity, and the loss of that supply could ripple through downstream markets.
Still, broader trade flows appear largely intact.
Shipping data shows non-tanker ocean freight costs have ticked down since the start of the war, Goldman economists noted. The rise in the cost of airfreight would add less than 5 basis points to global inflation, they wrote.
