The geopolitical conflict in the Middle East has suddenly escalated, posing severe risks of supply disruptions in the global energy market.
According to the Chasing Wind Trading Desk, Goldman Sachs' latest report indicates that the weekend oil market has priced in a risk premium of $18 per barrel, which corresponds to the expected impact of a complete blockade of the Strait of Hormuz for six weeks.
During the weekend, Iran's Supreme Leader Khamenei was killed in military actions involving Israel and the United States, after which Iran launched missiles and drones at U.S. assets and allies in multiple countries. Reports indicate that three oil tankers in the region have been damaged, and many carriers, oil producers, and insurance companies have adopted a cautious wait-and-see approach.
As a result, WTI retail trading products surged 15% over the weekend. Goldman Sachs analysts, including Daan Struyven, noted that the current real-time risk premium of $18 per barrel is at the 98th percentile since 2005, and the call skew in the options market has also reached its highest level in the past 15 years.
On Monday, WTI crude oil futures opened up more than 11%, while Brent crude oil surged 13% at the open, before the gains narrowed.
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In addition, the global natural gas and shipping markets are also affected. Goldman Sachs warned that if liquefied natural gas (LNG) supplies from the Strait of Hormuz are cut off for a month, European natural gas prices could soar by 130%, while the freight rates for Very Large Crude Carriers (VLCC) from the Middle East to China have tripled within a month before Friday's close.
<h2>The Strait of Hormuz as a Key Variable</h2>
The Strait of Hormuz is a global energy artery, carrying nearly one-fifth of the world's oil and LNG supplies.
According to Goldman Sachs' report, crude oil exports through the strait are expected to reach 13.4 million barrels per day by 2025. Although the International Energy Agency (IEA) estimates that 4.2 million barrels per day of oil can be redirected through existing backup pipelines, approximately 16 million barrels per day of oil flow remains at risk under the extreme assumption of a complete closure of the strait.
In terms of infrastructure damage, media reports indicate that an explosion occurred at the Kharg Island oil export terminal, which handles over 90% of Iran's crude oil exports, and the Duqm port was also attacked, but it has not yet been confirmed that the region's oil production or export infrastructure has suffered substantial damage.
Goldman Sachs currently maintains its base energy price forecast unchanged, assuming no sustained supply disruptions, but is closely monitoring high-frequency traffic data.
<h2>Oil Price Premium and Scenario Analysis</h2>
The $18 per barrel real-time risk premium calculated by Goldman Sachs implies that the market is pricing in a one-year disruption of 2.3 million barrels per day in global supply, equivalent to a complete shutdown of the Strait of Hormuz for about a month (assuming that backup pipelines can provide some buffer).
The report also conducted scenario analyses for different disruption situations:
<blockquote>
If the Strait of Hormuz were to be completely closed for a month without buffers such as backup pipelines and the release of Strategic Petroleum Reserves (SPR), the fair value of crude oil would increase by $15 per barrel;
If the full backup pipeline capacity of 4 million barrels per day is utilized, the price increase will narrow to $12 per barrel; if further combined with a global SPR release of 2 million barrels per day, the increase will drop to $10 per barrel.
If the Strait is only partially closed (50% flow obstruction) for a month, the price increase with the use of backup pipelines will be $4 per barrel.
</blockquote>
<h2>Supply Buffer: Can Backup Capacity, Inventory, and SPR Provide Support?</h2>
Goldman Sachs estimates that the current global oil backup capacity is about 3.7 million barrels per day, mainly concentrated in Saudi Arabia and the UAE. However, if the Strait of Hormuz remains closed, the physical conditions for OPEC+ to deploy the aforementioned backup capacity will be directly constrained, as the combined oil exports through the Strait from Saudi Arabia, Iraq, and the UAE could reach 13.1 million barrels per day by 2025.
In terms of inventory, global visible inventory is currently about 7.827 billion barrels, close to the historical median (74 days) when measured in terms of demand days, and the OECD commercial inventory, which has the strongest predictive ability for prices, is also near the median level. The U.S. Strategic Petroleum Reserve currently stands at 415 million barrels, having decreased by about 180 million barrels since the end of 2021. Notably, according to a report by the Financial Times, a U.S. Department of Energy official stated that there is currently &#34;no discussion about utilizing the SPR,&#34; which may imply that Washington believes the magnitude and duration of the oil price surge will be limited.
On the same day, OPEC+ announced an increase in the required production by 210,000 barrels per day in April, slightly higher than Goldman Sachs' previous expectation of 140,000 barrels per day. Additionally, Goldman Sachs pointed out that the sensitivity of U.S. shale oil to prices has decreased as resource maturity has increased, and significant production increases typically require several quarters to achieve.
<h2>European Natural Gas Faces Doubling Risk</h2>
Unlike the oil market, European natural gas prices had hardly accounted for geopolitical risks related to Iran until last Friday. However, Goldman Sachs believes that developments in the Middle East pose significant upside risks to European natural gas and global LNG prices.
The Strait of Hormuz typically transports about 80 million tons of LNG per year, accounting for 19% of global supply. Goldman Sachs predicts that if LNG deliveries through the Strait are completely interrupted for a month, it will tighten natural gas inventories in Northwestern Europe by the equivalent of 8% of their total capacity.
In this scenario, European natural gas benchmarks (TTF) and Asian spot LNG (JKM) prices could approach €74 per megawatt-hour ($25 per million British thermal units), which is 130% higher than current levels. This price threshold triggered significant gas demand destruction during the European energy crisis in 2022.
In contrast, the upside risks facing U.S. natural gas prices are very limited.
<h2>Refined Oil and Shipping Rates Soar</h2>
The conflict also has a direct impact on the refined oil and shipping markets. Although Iran only exports about 500,000 barrels per day of refined oil, the direct supply impact is limited, but about 9% of global middle distillates (diesel, gas oil) and 18% of jet fuel exports need to pass through the Strait of Hormuz. Obstruction of the Strait will bring further upside risks to the already strong refined oil margins, especially in the Asian market
Shipping and insurance rates are also facing significant increases. Goldman Sachs pointed out that since the beginning of the year, the average global crude oil freight rates have risen by 50% (i.e., $2.4 per barrel). Even if there are no further large-scale disruptions in the Strait, stockpiling for precautionary purposes and route redirection are enough to push tanker freight rates, which are already at high levels, even higher

Goldman Sachs estimates that the current real-time risk premium of $18 per barrel for crude oil is equivalent to a complete shutdown of the Strait of Hormuz for about six weeks. If the strait is only partially closed (with 50% of the flow obstructed) for one month, and with the use of backup pipelines, the oil price increase would be $4 per barrel. In the natural gas market, if the Strait of Hormuz is cut off for one month, European natural gas could surge by 130%, and refined oil and shipping rates will also rise further

- Heightened geopolitical tensions in the Middle East are significantly disrupting global energy markets, leading to a risk of supply interruptions.  
- Goldman Sachs reports an $18 risk premium per barrel in oil prices due to ongoing conflicts, with Brent crude rising by 13% and WTI by 11% following an attack on Iran's leadership and its subsequent strikes on U.S. assets.  
- Major maritime and gas markets are also affected, with predictions that European gas prices could surge by 130% if LNG supplies through the Strait of Hormuz are halted for a month.

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Goldman Sachs assesses the "Iran Shock": oil prices rise by $18 per barrel, equivalent to a 6-week closure of the Strait of Hormuz