After the outbreak of the Iran conflict, oil prices have become a core variable affecting the U.S. economy.
According to the Wind Trading Desk, Goldman Sachs predicted in a report on March 11 that the average price of Brent crude oil in March and April would be $98, about 40% higher than the average for the entire year of 2025, and then gradually decline to $71 by the end of 2026.
Based on the new oil price path, Goldman Sachs has comprehensively assessed the impact of the U.S.-Iran conflict on the U.S. economy, delaying the first interest rate cut from June to September, with another cut in December, and warned that in historically deep geopolitical events that have impacted the economy (such as the Gulf War and 9/11), stock market declines have exceeded average levels.
Specifically, Goldman Sachs raised its overall PCE inflation forecast for December 2026 by 0.8 percentage points to 2.9%, with extreme scenarios peaking in spring at 5%; the Q4/Q4 GDP growth forecast for 2026 was lowered by 0.3 percentage points to 2.2% (annualized at 2.6%). The peak unemployment rate forecast was raised to 4.6%, and the probability of recession in the next 12 months increased from 20% to 25%.
<h2>Oil Prices are the Core Transmission Channel: Brent Crude May Soar to $145 per Barrel</h2>
Goldman Sachs commodity strategists believe that the main transmission channel through which the U.S.-Iran conflict impacts the U.S. economy is oil prices.
In the baseline scenario, Brent crude is expected to average $98 per barrel in March and April, an increase of about 40% compared to the average price in 2025, and then gradually decline to $71 per barrel in the fourth quarter of 2026.
However, the upside risks cannot be ignored:
<ul>
<li>
Adverse Scenario: If oil flows through the Strait of Hormuz are interrupted for about a month, the average price of Brent crude in March and April will reach $110 per barrel, falling to $76 in the fourth quarter of 2026;
</li>
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Extreme Adverse Scenario: If the interruption in the Strait of Hormuz lasts for 60 days, the average price of oil in March and April could reach $145 per barrel, remaining high at $93 in the fourth quarter of 2026.
</li>
</ul>
Goldman Sachs' rule of thumb shows that for every 10% increase in oil prices, overall PCE inflation will rise by 0.2 percentage points, core PCE inflation by 0.04 percentage points, while GDP growth will be dragged down by about 0.1 percentage points. If the rise in oil prices is temporary and gradually fades, the impact on growth will be about half of the above values.
Meanwhile, Goldman Sachs' Financial Conditions Index (FCI) has tightened by about 0.2 percentage points, and the Federal Reserve's geopolitical risk index has rapidly climbed to four times its historical average.
<h2>Historically, it is not just oil prices that have truly dragged down the economy</h2>
Goldman Sachs reviewed the impact of past geopolitical conflicts on markets and the economy and drew three key conclusions.
First, the duration of oil price shocks often exceeds the duration of tightening financial conditions. Historically, the OPEC oil embargo from 1973 to 1974 led to a 452% increase in oil prices, and prices doubled during the Gulf War. However, it is worth noting that the current U.S. economy is significantly less sensitive to oil price shocks than in the past, due to the substantial decrease in oil intensity in U.S. GDP and the rise of shale oil, which means that increases in domestic energy capital expenditures during oil price hikes can partially offset declines in real income and consumption expenditures
Second, the impact of geopolitical risks on the economy surpasses oil prices themselves. Research by the Federal Reserve found that when geopolitical risk shocks and oil price shocks occur simultaneously, the drag on corporate core capital expenditures and monthly employment is about twice that of geopolitical risk shocks alone.
Third, stock market sell-offs and confidence collapses are common characteristics of the most severely impacted economic scenarios. In the most severe geopolitical events that have impacted the economy in recent years—the Gulf War and 9/11—the stock market declines exceeded average levels, consumer confidence plummeted significantly, and the Gulf War was also accompanied by a sharp rise in oil prices. The combination of these factors created the most severe shocks.
<h2>Economic Forecasts Deteriorate Significantly: Rising Inflation, Pressured Growth, Increasing Unemployment Rate</h2>
Based on new oil price forecasts, historical experience, and details from the February CPI report, Goldman Sachs has comprehensively revised its forecasts for the U.S. economy:
Inflation Forecast (Upward Revision):
<blockquote>
<ul>
<li>
The overall PCE inflation forecast for December 2026 has been raised by 0.8 percentage points to 2.9%, and the core PCE inflation forecast has been raised by 0.2 percentage points to 2.4%;
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<li>
In an adverse oil price scenario, overall PCE inflation will reach 3.3%, peaking in spring at 4.5%, with core PCE at 2.5%;
</li>
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In an extremely adverse scenario, overall PCE inflation will reach 4.0%, peaking in spring at 5%, with core PCE at 2.7%.
</li>
</ul>
</blockquote>
Growth Forecast (Downward Revision):
<blockquote>
<ul>
<li>
The GDP growth forecast for Q4/Q4 2026 has been lowered by 0.3 percentage points to 2.2% (annual basis of 2.6%);
</li>
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In an adverse oil price scenario, GDP growth will be 2.1% (Q4/Q4) or 2.5% (annual);
</li>
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In an extremely adverse scenario, GDP growth will be 1.9% (Q4/Q4) or 2.4% (annual).
</li>
</ul>
</blockquote>
Labor Market (Deterioration):
<ul>
<li>The peak unemployment rate forecast has been raised from 4.44% in February to 4.6% (expected to peak in the third quarter of 2026);</li>
</ul>
Recession Risk (Increased):
<ul>
<li>The probability of recession in the next 12 months has been raised by 5 percentage points to 25%, which is 10 percentage points higher than the long-term unconditional mean, but in line with Bloomberg's latest consensus forecast.</li>
</ul>
<h2>Federal Reserve Rate Cuts Delayed: First Rate Cut Postponed from June to September</h2>
Goldman Sachs originally expected the Federal Reserve to cut rates by 25 basis points in June and September, but now has postponed these cuts to September and December, with the terminal rate remaining at 3%-3.25%. The prerequisite for the September rate cut is further softening in the labor market, while core inflation continues to improve.
However, Goldman Sachs has also drawn a clear priority: if the pace of employment deterioration exceeds expectations, inflation concerns triggered by oil prices will not become an obstacle to the Federal Reserve's early rate cuts. The February employment report has kept this concern &#34;active,&#34; and with GDP downturns and rising geopolitical risks, the probability of further employment weakening is also increasing
In the scenario analysis, Goldman Sachs set the probabilities for each path as follows:
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<li>
Baseline scenario (one rate cut in September and December): 40% probability;
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<li>
High inflation/high growth/high terminal rate scenario (maintaining high rates for a longer period): 20% probability;
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Preventive rate cut scenario: 15% probability;
</li>
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Recession scenario (significant rate cuts): 25% probability.
</li>
</ul>
Among the four Fed path scenarios provided by Goldman Sachs, the probability-weighted forecast path remains more dovish than market pricing—this means that once the recession scenario (25% probability) materializes, the market may be underestimating the actual extent of the Federal Reserve's easing

Under the shadow of the Iran conflict, Goldman Sachs urgently revised its U.S. economic forecast: Brent crude oil could soar to $145 in the most extreme scenario, inflation could peak at 5% by the end of 2026, the probability of recession has risen to 25%, and the Q4 GDP growth forecast has been lowered by 0.3 percentage points. The first interest rate cut has been postponed from June to September, and Goldman Sachs warns that in historically significant geopolitical events that have deeply impacted the economy (such as the Gulf War and 9/11), stock market declines have exceeded the average level

- Following the outbreak of conflict in Iran, oil prices emerged as a key variable impacting the U.S. economy, with Goldman Sachs predicting a Brent crude average of $98 per barrel in March and April.  
- The report forecasts increased inflation rates and a potential rise in unemployment, while delaying the Federal Reserve's anticipated interest rate cuts to September and December.  
- If oil supply disruptions occur, oil prices could peak at $145 per barrel, significantly affecting inflation and growth forecasts, with a recession probability now estimated at 25%.

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Middle East crisis impact! Goldman Sachs lowers U.S. economic outlook, postpones interest rate cut expectations to September, warns that stock market sell-off may exceed average levels