The bank estimates that higher energy prices will increase overall global inflation by about 0.5-0.6 percentage points and lead to a smaller increase in core inflation by about 0.1-0.2 percentage points. The outlook reflects updated forecasts for oil and gas following supply disruptions related to the conflict and the closure of the Strait of Hormuz.
Goldman Sachs also said the economic shock from the conflict appears to be “centered mainly in energy markets rather than broader supply chains, reducing the risk of widespread disruptions like those seen during the pandemic,” Investing.com wrote.
Energy prices spiked due to the disruption of tanker traffic through the Strait of Hormuz, a key route for global oil supplies, during the war. The spike in oil and gas prices is expected to have a negative impact on economic activity and increase pressure on consumer prices around the world.
Despite the energy shock, Goldman Sachs noted that most major economies have limited dependence on non-energy trade from the Middle East. Non-energy exports from the Gulf account for about 1% of global trade, meaning that broader supply chain disruptions are likely to remain limited.
The Bank also noted that the current situation is different from the 2021-2022 inflation spike, when multiple supply chains were disrupted simultaneously. In the current conflict, the inflationary impact is expected to be largely confined to the energy sector.
However, Goldman Sachs warned that risks could increase if the conflict intensifies or if the Strait of Hormuz remains closed for an extended period. Prolonged disruptions in energy supplies could drive up oil prices and increase the negative impact on global economic growth, while keeping inflation high.
