Business

Goldman Sachs doubles down on oil and economy message for 2026

By Hillary Remy TheStreet

Updated June 1, 2026 11:11 AM

Three months into the Iran War, vessel traffic through the Strait of Hormuz is still running more than 90% below normal levels. Base chemicals have risen faster than at any point on record.

Asian petrochemical plants are declaring force majeure. And Goldman Sachs just published its most detailed assessment yet of what a prolonged supply disruption actually means for the global economy.

The headline finding will surprise investors who have been bracing for the worst.

What Goldman Sachs said about oil, supply chains, and global growth

Goldman Sachs economist Megan Peters published a note on May 29 modeling what would happen to the global economy if Middle Eastern commodity supplies were lost indefinitely.

The paper uses Exiobase input-output tables covering 200 products across 163 industries in 44 countries to trace how supply losses in the Persian Gulf ripple through global production chains.

The Gulf's commodity exports span crude oil, refined fuels, fertilizers, petrochemicals, sulfur, methanol, helium, steel, and aluminum.

Goldman's baseline assumption in the note is that vessel traffic through the Strait of Hormuz normalizes by end of June, but the firm explicitly flags that risks are increasingly skewed toward a longer disruption.

The purpose of the analysis is to model the growth damage if that normalization does not happen.

The worst-case oil and economy scenario and why Goldman rejects it

Goldman ran its supply loss model under the most extreme possible assumption: that every commodity input from the Middle East is irreplaceable, nothing can be substituted, and downstream production falls in proportion to whatever input is most constrained. Under that scenario, known as a Leontief production function, global GDP would decline by 27%.

Goldman does not believe that scenario is realistic.

The firm calls it a mathematical ceiling, not a forecast. The reason it matters is that it establishes the upper bound before the adjustment mechanisms that Goldman believes will limit the actual damage are introduced.

A more conservative threshold, filtering out inputs that account for less than 0.01% of gross output, reduces the hit from 27% to 10%. Raising the threshold to 1% brings it down to 6%. Neither of those figures is Goldman's estimate of what will actually happen.

Three reasons Goldman thinks the oil supply shock will remain contained

Goldman identifies three real-world mechanisms, drawing on the German gas crisis of 2022 as a recent precedent. When Russia cut off gas supplies to Europe, the most pessimistic forecasters predicted a 12% hit to German GDP.

The actual result was a slight technical recession. Adjustment mechanisms worked better than the models had suggested.

The first mechanism is eliminating non-critical inputs. Some materials account for a negligible share of production costs, meaning shortages cause inconvenience rather than output collapse.

Goldman points to Japan's Calbee food company, which switched to black-and-white packaging because naphtha, a key ingredient in ink production, has become scarce. The packaging changed; production continued.

The second mechanism is reallocation. When supplies become scarce, higher prices direct them toward their most productive uses.

More Oil and Gas:

Goldman highlights helium as the clearest example. Between 5% and 7% of global helium supply goes into party balloons, and that supply is already shifting toward semiconductor manufacturers. In Asia, production cuts from petrochemical shortages have been concentrated in textiles and packaging rather than higher-value manufacturing.

The third mechanism is substitution. Packaging producers are already replacing certain plastics with paper, glass, or aluminum. Even modest flexibility across materials substantially reduces economic losses.

Under Goldman's model, allowing for within-country reallocation reduces the estimated GDP hit from 10% down to just 0.4%. Adding global reallocation reduces it below 0.1%.

The chemical supply warning is the most underappreciated part of the note Das/Getty Images

What the realistic oil and economy impact looks like by country

After incorporating all three adjustment mechanisms, Goldman estimates the direct growth headwind from non-oil commodity supply disruptions at 0.4% to 0.5% of global GDP. That is separate from its oil price revisions tied to the conflict.

That estimate does not include the impact of higher oil and gas prices, which Goldman separately estimates at roughly 0.5 percentage points under current conditions.

The geographic impact is not evenly distributed. India faces the largest exposure at a potential 3.6% GDP hit. Türkiye is next at 3.3%, followed by South Korea at 3.1%.

The United States, by contrast, faces a direct exposure of approximately 0.3%, given its relatively limited dependence on Middle Eastern commodity imports and greater ability to source alternatives.

Goldman notes that the data so far is broadly consistent with its predictions. Demand destruction has skewed toward lower-income countries and lower-value industries.

Industrial production data has not yet shown signs of binding supply constraints. Prices for supply-constrained products have actually retraced somewhat in recent weeks.

Key figures from Goldman Sachs's oil price and supply chain analysis:

Strait of Hormuz traffic: vessel counts down more than 90% from normal levels three months into the Iran War
Price increases since conflict began: crude oil up 50%; base chemicals up more than 60%, fastest rate ever recorded; helium spot prices doubled; sulfur and sulfuric acid up 60%; methanol up 40%
Extreme scenario: under a Leontief production function where every input is irreplaceable, global GDP could fall 27%; Goldman explicitly labels this unrealistic
Realistic estimate: direct GDP headwind from non-oil supply disruptions of 0.4% to 0.5%; oil price impact adds roughly 0.5 percentage points separately
Country exposure: India most exposed at 3.6% potential GDP hit; Türkiye 3.3%; South Korea 3.1%; United States approximately 0.3%
Force majeure: some Asian petrochemical plants have already declared force majeure; Goldman analysts warn chemical supply disruptions could extend through 2027 even if the Strait of Hormuz reopens imminently
German precedent: most pessimistic forecasters predicted a 12% hit to German GDP from Russian gas cutoffs; actual result was a slight technical recession as households and firms adapted faster than models had anticipated

Source: Goldman Sachs May 29 note

What Goldman's oil and economy message means for investors

The core message of the note is that the global economy has more flexibility than the worst-case models imply. That does not mean the risks have diminished.

Goldman is explicit that the damage could rise substantially if oil supply constraints become more binding or if the disruption runs far longer than the firm's baseline assumes.

The chemical supply warning is the most underappreciated part of the note. Goldman's analysts say petrochemical disruptions could persist into 2027 even after a Hormuz reopening, because supply chain recovery is not instantaneous.

The plants that declared force majeure will not restart overnight. For investors in industrials, specialty chemicals, and sectors with deep petrochemical exposure, that timeline matters more than the headline GDP number.

The broader signal from Goldman is that the world economy, like the German economy in 2022, will likely adapt , but not without real pain concentrated in specific sectors and geographies. India, South Korea, and Türkiye are the most direct transmission points. The IEA has described the current energy disruption as the biggest in history. For investors tracking the macro impact of the Iran conflict, those three economies are where the data will tell the most complete story first.

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This story was originally published June 1, 2026 at 10:47 AM.