So, there's a war on, and it's messing with the oil. Specifically, the U.S.-Iran conflict has delivered what the analysts at Goldman Sachs are now calling the largest oil supply shock ever recorded. That's not a title given lightly; it means this disruption is bigger than the 1973 OPEC embargo and the 1990 Gulf War, at least in terms of the immediate hit to global oil flows.

Here's the scene: exports through the Persian Gulf, as tracked by vessel counts, have fallen to about 3% of their normal levels at the critical Strait of Hormuz. In response, Goldman's commodity research team, led by analyst Daan Struyven, decided on Wednesday that their initial models were too optimistic. They've upgraded their price forecast, citing a longer expected disruption and a more complex global policy response than they first thought.

"Our commodity strategists now expect Brent to average $98 in March and April—up 40% from the 2025 average— before falling back to $71 by 2026 Q4," the bank said. On Thursday morning, that forecast was already looking relevant, with front-month futures for West Texas Intermediate crude, as tracked by the United States Oil Fund (USO), trading about 6% higher near $95 a barrel. This surge came even after the International Energy Agency announced the largest emergency release of crude reserves in history—a whopping 400 million barrels.

The Numbers Behind the 'Largest Shock'

Goldman's analysis puts the current hit to Persian Gulf exports at 16.2 million barrels per day on a four-day moving average. That figure is what earns the "largest supply shock on record" label, officially exceeding the production losses from the 1973 oil embargo, the 1980 Iran-Iraq War, and the 1990 Iraqi invasion of Kuwait.

"Due to uncertainty around the duration of the largest oil supply shock on record… oil prices are likely to trend higher over that period until the market gains confidence a lengthy disruption is unlikely," Struyven said.

The entire near-term price picture now hinges on one variable: how long flows stay depressed. Goldman's current assumption is that the Strait begins recovering on March 21. But here's the kicker: every day that assumption proves wrong adds what the bank calls "non-linear upside" to prices. In plain English, prices could go much, much higher. The bank estimates that if Strait flows remain at these crippled levels through the end of March, daily oil prices could blow past the 2008 peak—topping $145 per barrel.

What an Oil Shock Does to an Economy (Hint: It's Not Good)

When oil prices spike because of geopolitical supply risk—not because of roaring global demand—it creates a specific kind of economic headache. It's an inflation shock that central banks can't easily control with their usual interest rate tools.

Goldman Sachs has run the numbers: a sustained 10% increase in oil prices raises the headline PCE inflation gauge by about 0.2 percentage points, while shaving roughly 0.1 percentage points from GDP growth. So, higher oil prices do a double-whammy: they push inflation up and economic growth down at the same time. This combination, sometimes called an energy-driven inflation shock, creates one of the trickiest environments for monetary policy makers.

Goldman's U.S. economics team has already translated this oil shock into concrete forecast changes. The bank raised its December 2026 headline PCE inflation forecast by 0.8 percentage points to 2.9% and its core PCE forecast (which strips out food and energy) by 0.2 percentage points to 2.4%. On the growth side, GDP for 2026 was revised down by 0.3 percentage points to 2.2% on a Q4-over-Q4 basis.

And that's just the base case. In their more severe upside scenario—assuming a full month of Hormuz disruption—Goldman sees headline PCE inflation peaking at 4.5% in the spring before settling at 3.3% by year-end. Their 12-month probability of a U.S. recession was raised by 5 percentage points to 25%, which the bank notes is 10 percentage points above the long-term average.

The Fed's Suddenly More Complicated Path

All this inflation upgrade has direct consequences for the Federal Reserve. Rising oil prices could seriously complicate the path toward the interest rate cuts that everyone has been waiting for.

Goldman has now pushed back its forecast for the first Fed rate cut from June to September, with a second cut following in December. The bank's forecast for where rates will eventually settle (the terminal rate) remains at 3–3.25%.

The analysts maintain a caveat: a "sufficiently rapid deterioration in the labor market" could still force the Fed's hand for earlier cuts. They note that recent weakness in February payrolls data kept that door slightly ajar. Their argument is that oil-driven inflation pressure alone might not hold the Fed back if economic growth and employment start deteriorating sharply enough. But it certainly doesn't make cutting easier.

The bottom line is this: a prolonged closure of the Strait of Hormuz has no real historical precedent to benchmark against. There's no reliable model to predict how much demand will be destroyed by sky-high prices, and the strategic oil reserve buffer that countries can tap is already described as thin. The market, faced with all this uncertainty, is essentially starting to price in a countdown to… something. We just don't know exactly what yet.