Oil At $110? Goldman Flags Major Risk If Iran Disrupts Strait Of Hormuz Shipping

Fears of a major oil supply shock are mounting as tensions escalate in the Strait of Hormuz, a vital artery for nearly 20% of global crude shipments, with Wall Street racing to assess the potential price impact after the U.S. struck Iran over the weekend.

What Happened: Goldman Sachs on Monday flagged a scenario where Brent oil could soar to $110 per barrel if Iran shuts down the Strait of Hormuz in retaliation for the American strikes on three of its nuclear sites.

Commodity analyst Daan Struyven said in a note that the geopolitical risk premium in oil prices — as broadly tracked by the United States Oil Fund USO — could "jump to record levels" if the strait is blocked.

The mere risk of a closure has already added an estimated $12 geopolitical premium to oil crude pricing, with Brent rising to just under $80 per barrel.

Goldman Sachs modeled two key disruption scenarios going forward:

• If Iranian oil supply drops by 1.75 million barrels per day, that alone could push Brent prices to around $90 per barrel.
• In a more severe case, oil flows through the Strait of Hormuz are cut by 50% for one month and stay down 10% for another 11 months. That scenario could cause Brent crude to spike briefly to $110 per barrel before moderating.

Goldman estimates that the risk premium embedded in oil's price structure would peak at just over $25 per barrel in this scenario.

Some mitigation measures are assumed, including the release of U.S. strategic reserves—2 million barrels per day in the first month and 1 million barrels per day in the second—as well as 2.6 million barrels per day of bypass capacity from Saudi and UAE pipelines.

How Likely Is A Disruption In The Strait of Hormuz? And Why It Matters?

Currently, oil tankers are still passing through the strait, according to vessel tracking data. Yet, the market is pricing a notable chance that Iran may order the closure of Hormuz.

Prediction platform Polymarket assigns a 31% chance that Iran will close the Strait of Hormuz before July.

The Strait of Hormuz is crucial to global oil markets. In 2024, Saudi Arabia, Iraq and the UAE exported 13.2 million barrels per day of oil through the strait. China was the largest buyer, importing 5 million barrels daily via the route.

“While the events in the Middle East remain fluid, we think that the economic incentives, including for the US and China, to try to prevent a sustained and very large disruption of the Strait of Hormuz would be strong,” Struyven said.

Now Read

• The Palantir Effect: Momentum Stocks Are Making A Killing Like Never Before
  

Image: Shutterstock