Goldman Sachs says that a disruption in the Strait of Hormuz could push oil prices above the highs of 2008 and 2022.

Investing.com — Goldman Sachs analysts have pointed out that the threat of supply disruptions around the Strait of Hormuz could tighten global supplies more severely than expected, increasing the upside risk to oil prices.

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The bank’s commodities research team states that their baseline scenario assumes Brent crude futures will trade in the $80+ range in March and in the high $70s in the second quarter, but recent developments in the Persian Gulf are increasing the likelihood of higher prices.

In a report to clients on Friday, strategist team leader Dan Struyven wrote: “We now believe that if flows through the Strait of Hormuz remain suppressed throughout March, oil prices, especially refined product prices, could surpass the peaks seen in 2008 and 2022.”

Strategists see multiple reasons indicating that “the significant upside risk to our baseline oil price forecast is rapidly increasing.” Therefore, Goldman Sachs says that if shipping flows through the Strait of Hormuz do not quickly return to normal, the bank may revise its forecast.

Oil flow through this critical chokepoint has already declined sharply. Goldman estimates that daily transportation through the Strait of Hormuz has decreased by about 1.8 million barrels, roughly 10% below normal levels, far less than the 15% disruption previously assumed by the bank.

Alternative export routes are also unlikely to fill this gap. Goldman states that recent diverted shipments through pipelines and ports such as Yanbu in Saudi Arabia and Fujairah in the UAE have averaged only about 900,000 barrels per day, while the theoretical capacity is around 3.6 million barrels.

Attacks on Fujairah port and local fuel shortages have also complicated efforts to reroute shipments out of the Gulf region, highlighting the vulnerability of the area’s export infrastructure.

Shipping conditions remain uncertain, with many tanker operators adopting a wait-and-see approach amid increased security risks. Goldman notes that insurance costs alone do not fully explain the decline in freight volumes, pointing out that some insurers are still providing coverage and that freight rates have risen sharply enough to offset higher premiums.

The bank also warns that the scale of the current supply shock could push prices high enough to suppress demand. Goldman estimates that the impact of approximately 1.7 million barrels per day of supply loss in the Persian Gulf far exceeds the effects of Russia’s production disruptions earlier in 2022.

This decline could quickly deplete global inventories and push prices to levels that could trigger demand destruction, especially if consumer stockpiling accelerates or refined product exports from non-OECD countries decrease.

Goldman states that meaningful recovery in oil flows may require broader de-escalation of conflicts, stronger U.S. military protection for tankers, or Iran deciding to allow ships to pass safely through the Strait of Hormuz.

Until then, oil price risks remain clearly skewed to the upside.

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