Goldman Sachs warned in its latest flagship macro report &#34;Top of Mind&#34; released on March 20 that current global assets have only fully priced in the &#34;inflation shock,&#34; while completely ignoring the devastating impact of high energy costs on global economic growth.
The report stated that the &#34;deadlock&#34; in the Strait of Hormuz means that the war is unlikely to end in the short term, and once market expectations are falsified, &#34;growth downturn (recession)&#34; will be the second shoe to drop, at which point global asset pricing will face an extremely violent reversal.
Based on the risk of a prolonged crisis, Goldman Sachs has comprehensively lowered the growth forecasts for major economies such as the United States and the Eurozone for 2026, raised inflation expectations, and significantly postponed the next interest rate cut by the Federal Reserve from June to September.
It is worth mentioning that, according to a report by CCTV News on March 22, the Iranian representative to the International Maritime Organization stated that Iran allows non-&#34;enemy&#34; vessels to pass through the Strait of Hormuz, but coordination with Iran on security issues and related arrangements is required.
<h2>Why is a swift victory in war difficult to achieve? The &#34;deadlock&#34; in the Strait of Hormuz and the illusion of escorting</h2>
Goldman Sachs believes that the core suspense of this conflict lies not in whether the U.S. military can achieve tactical victory, but in when the &#34;global energy stranglehold&#34; of the Strait of Hormuz can be unlocked.
In the report, former commander of the U.S. Fifth Fleet Donegan provided detailed data to confirm the military advantage of the U.S. and Israel.
However, military advantage cannot be translated into the end of the war.
Vakil, director of the Middle East program at Chatham House, believes that Iran views this conflict as a &#34;battle for survival.&#34; Iran learned a lesson from the &#34;Twelve-Day War&#34; in June 2025—when Iran made concessions too early, exposing its weaknesses.
Therefore, Iran's current strategy is to use low-cost drones and other asymmetric weapons to wage a protracted war, spreading the costs as widely as possible until it secures guarantees for the long-term survival of the Islamic Republic (including substantial sanctions relief). Vakil emphasized:
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&#34;Until Iran sees a reliable path to these guarantees, it has no motivation to end this war.&#34;
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Moreover, Iran's command system is far more resilient than the market imagines. Vakil pointed out that the Islamic Revolutionary Guard Corps (IRGC) is managing daily defenses through a decentralized &#34;mosaic command structure,&#34; and this bureaucratic system is still functioning effectively.
Former U.S. Middle East envoy Ambassador Dennis Ross revealed another deadlock from Washington's perspective: if it weren't for Iran's control over the Strait of Hormuz, Trump might have already declared victory. Trump today has every reason to claim that Iran cannot pose a conventional threat to its neighbors for at least five years, but &#34;as long as Iran controls who can export oil and who can pass through the strait, he cannot declare victory and then stop.&#34;
Ross believes that, in the absence of U.S. military control over the coastal territories of the strait, mediation facilitated by Russian President Putin may be the quickest way to break the deadlock. However, the conditions for mediation are currently not in place, especially since the key figure capable of coordinating various factions (including the IRGC) on the Iranian side—former Speaker of Parliament Ali Larijani—has recently been killed, significantly reducing the probability of reaching a peace agreement in the short term
So, can military escort break the deadlock of physical supply disruption? Donegan's answer is extremely cold: there is the capability to escort, but there is no capacity to restore normal flow.
Although the United States and its allies (the UK, France, Germany, Italy, Japan, etc.) have expressed their readiness to participate in escorting and have been conducting related military exercises for the past 15 years, Donegan emphasized that the escort model inherently lacks economies of scale.
He assessed that military escort can at most restore 20% of normal oil flow, plus an additional 15-20% from land pipelines, leaving a huge gap from normal levels. Restoring supply does not have a &#34;switch&#34;; the initiative ultimately lies in Iran's hands—
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&#34;This is not merely a military issue, but a game of motivations and leverage among all parties.&#34;
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<h2>Unprecedented energy supply disruption—oil prices may surpass the historical high of 2008</h2>
Goldman Sachs' commodity team quantified the historic scale of this shock: the estimated loss of current oil flow from the Persian Gulf is as high as 17.6 million barrels per day, accounting for 17% of global supply, which is 18 times the peak of Russian oil disruption in April 2022. The actual flow through the Strait of Hormuz has plummeted from a normal 20 million barrels per day to 600,000 barrels per day, a drop of 97%.
Although some crude oil is being rerouted through Saudi Arabia's East-West pipeline (to Yanbu Port) and the UAE's Habshan-Fujairah pipeline, Goldman Sachs estimates that the net redirection capacity of these two pipelines is only 1.8 million barrels per day, which is a drop in the bucket.
Based on this, Goldman Sachs constructed three mid-term oil price projection scenarios:
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Scenario One (most optimistic: restoration of pre-war flow within a month): The average Brent crude oil price is expected to be $71 per barrel in Q4 2026. Global commercial inventories will suffer a 6% (617 million barrels) hit, and the release of strategic petroleum reserves (SPR) by IEA member countries and absorption of Russian waterborne crude can hedge about 50% of the gap.
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Scenario Two (disruption lasts 60 days until April 28): The average Brent price in Q4 2026 is expected to soar to $93 per barrel. The inventory hit will expand to nearly 20% (1.816 billion barrels), and policy responses can only hedge about 30%.
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Scenario Three (extreme: 60 days of disruption combined with long-term capacity damage in the Middle East): If Middle Eastern production remains 2 million barrels per day below normal levels after reopening, Brent oil prices will reach $110 per barrel in Q4 2027.
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Goldman Sachs warns that if the sluggish flow keeps the market focused on long-term disruption risks, Brent crude oil is very likely to surpass the historical high of 2008. Historical data shows that four years after the five largest supply shocks, the production of affected countries was still on average over 40% below normal levels. Considering that about 25% of production in the Persian Gulf region comes from offshore operations, the engineering complexity means that the capacity recovery cycle will be extremely lengthy.
The crisis in the natural gas (LNG) market is also not to be overlooked.
European natural gas benchmark (TTF) prices have surged over 90% to €61/MWh compared to pre-war levels. More critically, according to Qatar Energy CEO Saad Al-Kaabi, the damage caused by Iranian missiles to the 77 mtpa Ras Laffan LNG plant will result in 17% of the country's LNG capacity being shut down in the next 2-3 years
Goldman Sachs pointed out that if Qatar's LNG production is halted for more than two months, TTF prices could approach €100/MWh. The previously anticipated &#34;largest LNG supply growth wave in history by 2027&#34; is now at significant risk of being delayed.
In response to the crisis, the U.S. government has deployed several policy tools: coordinating the release of 172 million barrels from the Strategic Petroleum Reserve (SPR) (averaging about 1.4 million barrels per day), exempting sanctions on oil from Russia and Venezuela, and suspending the Jones Act for 60 days.
However, Alec Phillips, Goldman Sachs' Chief Political Economist in the U.S., noted that U.S. SPR inventories have fallen below 60% of capacity and are projected to plummet to 33% by mid-year under current plans, limiting further release capacity. As for the market's concerns about an oil export ban, while it is &#34;very likely,&#34; it is not currently a baseline assumption.
<h2>The market has only priced in &#34;inflation,&#34; not &#34;recession&#34;</h2>
The impact of energy shocks on the global macroeconomy is becoming evident. Joseph Briggs, a senior global economist at Goldman Sachs, proposed a key &#34;rule of thumb&#34;: For every 10% increase in oil prices, global GDP will decline by more than 0.1%, and the overall global inflation rate will rise by 0.2 percentage points (with Asian countries and Europe being hit harder), and core inflation will rise by 0.03-0.06 percentage points.
Based on this calculation, the current three-week disruption has caused about a 0.3% drag on global GDP; if the disruption extends to 60 days, it will lead to a 0.9% decline in global GDP and push global prices up by 1.7%. Additionally, since the outbreak of war, the global financial conditions index (FCI) has tightened significantly by 51 basis points, and the risk of economic slowdown is sharply rising.
However, Kamakshya Trivedi, Chief FX and Emerging Markets Strategist at Goldman Sachs, pointed out the most fatal vulnerability in the current global market pricing structure: the market has completely failed to account for the risk of &#34;growth downturn.&#34;
Trivedi analyzed that global assets have thus far treated this conflict merely as an &#34;inflation shock.&#34; This is reflected in: a hawkish repricing in the interest rate market (G10 and emerging market front-end yields have surged sharply, with the UK and Hungary, which previously priced in the most rate cut expectations, reacting the most); and a strict differentiation in the foreign exchange market along the terms of trade (ToT) axis (the U.S. dollar has strengthened, while currencies of energy-exporting countries like Norway, Canada, and Brazil have outperformed, whereas currencies of Eurasian importing countries are under pressure).
This pricing logic implies an extremely dangerous premise—the market firmly believes that the war is temporary (the downward-sloping oil and gas futures curve also confirms this).
Trivedi warned that once this blind optimism is proven wrong and energy prices prove to be persistent, the market will be forced to sharply downgrade pricing for global growth and corporate earnings. At that point, &#34;growth downturn&#34; will become the second shoe to drop. Under this recession trading logic:
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Developed and emerging market equities, which have performed relatively well so far, will face significant selling pressure;
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Cyclical assets like copper and the Australian dollar will be violently sold off;
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The hawkish pricing of front-end yields will reverse;
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The Japanese Yen (JPY) will replace the US Dollar as the ultimate safe-haven currency in a dual-kill environment for stocks and bonds.
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The Middle East and North Africa (MENA) region has already begun to feel the economic winter. Goldman Sachs MENA economist Farouk Soussa estimates that Gulf Cooperation Council (GCC) countries are losing about $700 million daily in oil revenue, and if the disruption lasts for two months, the total loss will approach $80 billion. The decline in non-oil GDP in countries like Oman, Saudi Arabia, and Kuwait may even exceed the levels seen during the COVID-19 pandemic in 2020. Amid capital flight and heightened risk aversion, the Egyptian Pound (EGP) has become the worst-performing frontier market currency since the outbreak of war.
<h2>Conclusion</h2>
The core variable of this epic crisis is no longer the firepower of the US military, but the navigation timetable of the Strait of Hormuz.
Despite recent optimistic signals from Trump and senior officials (such as Energy Secretary Wright) suggesting that the war will end in &#34;a few weeks,&#34; Goldman Sachs believes that Iran's survival game logic, the political dilemma of the US constrained by control over the strait, the natural ceiling on escort capabilities, and the lack of mediation conditions—all point to one possibility: the duration of the disruption will be longer than the &#34;few weeks&#34; currently implied by market pricing.
Once this expectation is revised, investors will face not just the continuation of &#34;inflation trades,&#34; but a shift to &#34;recession trades.&#34; As Trivedi puts it, a downturn in growth may be the next shoe to drop

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The core variable of this epic crisis is no longer the firepower of the U.S. military, but the navigation timetable of the Strait of Hormuz. Although Trump and his senior officials have recently released optimistic signals to the market that the war will end in "a few weeks," Goldman Sachs believes that Iran's survival game logic, the political dilemma of the U.S. being constrained by control of the strait, the natural ceiling of escort capabilities, and the lack of mediation conditions—all point to one possibility: the duration of the interruption will be longer than the "few weeks" currently implied by market pricing

- Goldman Sachs warned in its March 20 macro report that global assets have fully priced in the "inflation shock" while ignoring the severe impact of high energy costs on economic growth.  
- The report highlighted that the ongoing conflict in the Strait of Hormuz complicates military resolution, emphasizing that Iran views the conflict as a survival struggle, limiting prospects for a quick end.  
- Goldman Sachs has revised down growth forecasts for major economies for 2026, raised inflation expectations, and postponed the anticipated rate cut by the Federal Reserve from June to September, indicating potential long-term economic challenges.

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Goldman Sachs interprets "How long will the Iran war last": The market has only traded "inflation" and has not yet traded "recession"