Iran War Drives Energy Prices Upward
The ongoing war in Iran is driving oil and gas prices higher, delivering a shock to the world economy through elevated energy costs. Goldman Sachs economists assess that while this conflict will hinder global growth, it falls short of sparking a widespread supply chain crisis akin to the COVID-19 pandemic.
Quantified Economic Impacts
Economists at Goldman Sachs project that higher oil prices from the Iran war will shave 0.3% off global GDP growth and lift headline inflation by 0.5 to 0.6 percentage points over the next year, with core inflation rising by a modest 0.1 to 0.2 points. Central banks worldwide, scarred by pandemic-era supply disruptions that fueled inflation surges, will scrutinize these pressures closely.
Strait of Hormuz as Key Risk Factor
The analysis highlights skewed risks toward greater impacts should the Strait of Hormuz—a narrow chokepoint for shipping from the Persian Gulf—stay closed to traffic. This waterway is essential for accessing global sea lanes, amplifying potential energy supply vulnerabilities.
Narrower Scope Than COVID Supply Shocks
A critical distinction from 2021-2022 lies in the shock's concentration within the energy sector, unlike the broader global supply chain unraveling during the pandemic. Developed markets like the U.S., Eurozone, U.K., Japan, and Canada source less than 1% of imports from the Middle East, primarily energy products, while China and East Asia dominate over 20% of global trade.
Limited Non-Energy Disruptions
Fewer interruptions to critical inputs and just-in-time inventories are anticipated, as Middle Eastern exports center on select chemicals and metals unlikely to cause major bottlenecks. Methanol stands out as the most vulnerable, powering acetic acid for adhesives, solvents, and paints; Iran supplies about 20% of global capacity, but no immediate chokepoints emerge. The Middle East also lacks significance as a trade re-export hub, dealing mainly in yachts, tugboats, and floating cranes.
In summary, our analysis suggests that the major risk to global supply and inflation is mostly confined to energy, which limits the risk that the severe supply chain disruptions (and associated surge in inflation) and large second-round inflation effects observed in 2021-2022 will re-emerge.
