Iran War: Goldman Sachs raises oil price forecasts due to Middle East risks

Goldman Sachs has issued a stark warning that oil prices could surge to $120 per barrel if attacks on shipping in the Middle East escalate, citing heightened concerns over potential disruptions to crude supplies. Co-head of global commodities research at Goldman Sachs, Daan Struyven, expressed these concerns during an interview with Bloomberg, emphasizing that the risk of shipping disruptions now looms large in the minds of investors.

The situation intensified over the weekend following the US's retaliatory strikes on three Iranian oil tankers, following Iran's retaliatory attacks on two US warships using ballistic missiles. Iranian parliament speaker Mohammad Bagher Qalibaf further escalated tensions by declaring that the era of "proportionate responses" had ended and warning that Iran's future retaliation would be "faster, heavier, and more painful."

Adding to the uncertainty, Iran announced plans to establish a new "exclusion zone" starting from the line of the US naval blockade, extending towards the Strait of Hormuz and into the Persian Gulf. Mohsen Rezaei, the new head of Iran's Supreme National Security Council, stated that any ship entering this zone for the purpose of passing through the Strait of Hormuz would be listed on Iran's sanctions list.

Goldman Sachs anticipates a "meaningful upside" in crude oil prices and recommends investors to consider higher natural gas and refined product prices. The bank suggests that the supply shocks in the gas and fuel markets are more significant than those in the crude oil market.

Oil prices continued to climb on Tuesday, with Brent crude futures increasing by $1.21 or 1.25% to $98.30 per barrel, and US West Texas Intermediate crude rising by $2.10 or 2.30% to $93.63 per barrel. Brent had hit its highest level since July 24 in the previous session as traders priced in at elevated risks due to the escalating tensions around the Strait of Hormuz, a critical route for global oil shipments.

Experts are closely monitoring the duration of any potential disruptions, as it could significantly impact oil prices. JPMorgan estimates that each additional month of disruption could add around $7 to $8 per barrel to Brent prices, projecting that if the disruption extends for three months, monthly Brent prices could reach approximately $114 per barrel.

ANZ analysts have also raised their short-term Brent forecast to $95 per barrel and warned that prices could soar higher if the Middle East conflict intensifies, potentially delaying the return of full Middle East supply.