Oil Market Impacts from Iran

Concerns about oil supply, inflation, and cross-asset volatility stemming from strikes in Iran are examined, focusing on the economic and market implications. Daan Struyven, Co-Head of Global Commodities Research and Head of Oil Research at Goldman Sachs, discusses the impact of reduced flows through the Strait of Hormuz, which accounts for one-fifth of global oil supply. While the base case assumes no sustained supply disruptions, the upside risks to energy prices are significant, particularly with a potential full closure of the Strait of Hormuz. The market is currently pricing in a $13 per barrel risk premium, equivalent to a four-week closure of the Strait. Struyven also notes that a sustained increase in crude oil prices could raise headline inflation and reduce disposable income, though a benign economic backdrop could mitigate these effects.