Goldman Sachs has released an analysis indicating that the ongoing war in Iran is expected to push oil and gas prices higher, resulting in a shock to the world economy through increased energy costs. The firm estimates that the conflict will reduce global economic growth by 0.3% of GDP and raise headline inflation by approximately 0.5 to 0.6 percentage points over the next year, with a smaller impact of 0.1 to 0.2 percentage points on core inflation [1].
The report highlights that the risks of broader economic disruption are skewed toward larger impacts if the Strait of Hormuz remains closed to shipping, as it is a critical passage for Persian Gulf exports. However, Goldman Sachs asserts that the supply shock is likely to remain confined to the energy sector, unlike the COVID-19 pandemic, which triggered a widespread supply chain crisis. The analysis notes that less than 1% of imports to developed economies such as the U.S., Eurozone, U.K., Japan, and Canada originate from the Middle East, limiting the risk of non-energy trade disruptions. In contrast, China and East Asia account for more than 20% of global trade [1].
Goldman Sachs also points out that fewer disruptions of critical inputs and 'just in time' inventory management are anticipated, as the Middle East's potential bottleneck exports are focused on certain chemicals and metals. Methanol, used in producing acetic acid for industrial adhesives, solvents, and paints, is identified as the most likely source of production disruption, with Iran accounting for about 20% of global production capacity. While the loss of Iranian methanol supply could have longer-term effects, the economists do not see clear choke points at present [1].
The report concludes that the Middle East is not a significant trade hub for re-exported products, further reducing the likelihood of a broader supply chain crisis. Central banks are expected to be particularly sensitive to inflation concerns given the recent history of supply chain disruptions, but the current shock is seen as more narrowly concentrated in the energy sector [1].
CONCLUSION
Goldman Sachs projects that the Iran war will primarily impact global energy prices and inflation, but is unlikely to trigger a widespread supply chain crisis. The limited trade exposure of developed economies to the Middle East and the sector-specific nature of potential disruptions support a more contained economic effect. Market participants and central banks are expected to focus on inflation risks, but broader supply chain concerns appear minimal at this time.