Israel-Iran war could set oil markets in fire, Goldman Sachs sees $10 per barrel spike

First Post

20-06-2025

Goldman Sachs recently revised its assessment of geopolitical risk in oil markets, suggesting that Brent crude prices could climb by approximately $10 per barrel due to conflict in West Asia read more
The escalation of hostilities between Israel and Iran has rattled global oil markets, with major financial institutions such as Goldman Sachs forecasting a significant spike in oil prices. According to analysts, the uncertainty surrounding regional stability, especially with the potential involvement of the United States, is poised to inject volatility into oil pricing, which had recently settled into relative calm.
Geopolitical unrest alters price projections
Goldman Sachs recently revised its assessment of geopolitical risk in oil markets, suggesting that Brent crude prices could climb by approximately $10 per barrel due to conflict in West Asia. This would place Brent above the $85 per barrel mark, rising from levels in the mid-$70s, as reported by Oilprice.com's Irina Slav. The bank noted that if Iranian oil supply were disrupted more severely prices could surge even further, possibly exceeding $90 per barrel.
In particular, Goldman highlighted vulnerabilities in oil transport through strategic chokepoints such as the Bab el-Mandeb Strait, previously targeted by Yemen's Houthi rebels. These flashpoints illustrate the broader risks to oil infrastructure in a highly combustible region.
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Threat of US involvement intensifies market jitters
Adding to market unease is the potential for the United States to enter the conflict. President Donald Trump has publicly flirted with the idea of US intervention, stating ambiguously, 'I may do it. I may not do it.'
Though Trump has acknowledged internal political resistance to renewed military engagement in West Asia citing criticism from Republican figures like Steve Bannon, he also emphasised the threat of a nuclear Iran as a possible justification for action.
As a result, traders are adopting a cautious stance. Oil prices initially dipped slightly amid the uncertainty with Brent crude settling at $76.56 per barrel and West Texas Intermediate (WTI) at $75.22, awaiting clearer US policy signals.
War escalation sends prices climbing
Events quickly shifted on the ground. Oil prices surged nearly 3 per cent as of June 19 following Israel's direct strikes on Iranian nuclear sites and Iran's retaliatory missile barrage, which included an attack on an Israeli hospital. Brent crude closed at $78.85 per barrel, its highest since January, while WTI climbed to $77.20.
These strikes marked a dramatic escalation, dispelling any illusions of a short-lived skirmish. Israeli Prime Minister Benjamin Netanyahu vowed that Iran's leaders would 'pay the full price,' while Tehran warned against foreign nations—implicitly the US—joining the fray.
Rory Johnston, analyst and founder of Commodity Context, said market consensus is tilting toward US participation in the conflict, which would significantly compound the risks to oil infrastructure and supply routes.
Strategic chokepoints and oil supply at stake
Iran's role as the third-largest oil producer in OPEC places it at the heart of this crisis. With a production output of approximately 3.3 million barrels per day, Iran remains a crucial supplier—particularly to China, which absorbs the majority of its 2 million daily barrels of crude exports.
More critically, the Strait of Hormuz—a narrow passage bordering southern Iran—serves as the gateway for 18 to 21 million barrels of oil and oil products each day. RBC Capital analyst Helima Croft emphasised that this waterway could become a primary target if Iran perceives an existential threat. She warned that attacks on tankers and energy installations would likely follow any US military involvement.
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JP Morgan went further, positing a worst-case scenario in which conflict spreads across the broader region and leads to the closure of the Strait. Under such circumstances, oil prices could spike to between $120 and $130 per barrel.
Risk premiums and market sentiment
Goldman Sachs reiterated its position that a geopolitical risk premium of around $10 per barrel is now reasonable, considering the lower availability of Iranian oil and potential for wider supply disruption. Even in the event of a de-escalation, it believes that Brent prices will not return to the low $60s seen in the recent past.
Similarly, Barclays warned that if half of Iran's oil exports were halted, Brent could hit $85 per barrel. A broader war could push prices past the $100 threshold.
Price Futures Group analyst Phil Flynn noted that the market had been lulled into a 'complacency' that has now been shattered. 'The market has been underplaying geopolitical risk,' he said, arguing that this latest flare-up will keep prices elevated as long as uncertainty remains.
Temporary or sustained price hike?
Despite the price spike, some observers maintain that any surge will likely be short-lived. DBRS Morningstar, in a note released Thursday, cautioned that higher oil prices might hurt the global economy by intensifying tariff-related pressures and suppressing demand. In their view, once the conflict recedes, the war premium would deflate and oil prices could cycle lower.
Nonetheless, the potential for prolonged instability keeps the market on alert. With no clear exit strategy from either Israel or Iran, and Washington's decision on intervention still pending, investors are bracing for further upheaval.
Opec+ response and the global oil balance
In response to the emerging tensions, Russian Deputy Prime Minister Alexander Novak advised the Opec+ alliance not to overreact. Speaking at an economic forum in St Petersburg, Novak recommended that oil producers stick to current plans to increase supply in light of rising summer demand. His comments sought to reassure markets and prevent price volatility from spiralling further.
Yet, whether Opec+ output increases will be enough to stabilise prices amid the shockwaves of a regional war remains to be seen. Market dynamics are now driven more by geopolitical risk than traditional supply and demand fundamentals.
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A market on the edge
The Israel-Iran conflict represents a potential inflection point for global energy markets. Analysts from Goldman Sachs to JP Morgan are now factoring in a war risk premium, with oil prices already trending upward and possibly heading for triple digits if the situation worsens.
The spectre of US military involvement could dramatically shift the balance, not only disrupting Iranian exports but also imperiling vital shipping routes. While some believe any price surge would be short-lived, the combination of strategic vulnerability and political unpredictability suggests that volatility will persist for the foreseeable future.
Whether oil prices stabilise or soar above $100 per barrel may ultimately depend not just on battlefield developments, but on decisions yet to be made in Washington.