There is a higher risk that oil and gas prices could rise significantly and significantly affect economies in Europe and the UK, Goldman Sachs has predicted, after the US dropped 'bunker buster' bombs on three of Iran's nuclear sites.
Stressing that events in the Middle East "remain fluid," the investment bank said: "we think that the economic incentives, including for the US and China, to try to prevent a sustained and very large disruption of the Strait of Hormuz would be strong."
Oil prices were on the rise on Monday, following the surprise attack over the weekend, with Brent crude topping $80 a barrel and WTI less affected as the US is a net exporter.
The rise in Brent reflects a geopolitical risk premium of $12 per barrel linked to possible supply disruptions, Goldman strategists said in a note to clients, warning that downside risks to energy supply and upside risks to prices have increased.
In the first of two scenarios, the Goldman team said a reduction in Iran’s supply alone could push Brent crude oil prices to a peak of around $90 per barrel.
A broader regional disruption causing oil flows through the Strait of Hormuz to drop by 50% for one month and then remain down 10% for 11 months could push Brent prices briefly to around $110 per barrel.
European natural gas prices are also expected to price in a higher risk of supply disruption. The Dutch Title Transfer Facility (TTF) gas price currently stands at €41.5 per megawatt-hour but could rise closer to €74, a level that triggered significant demand destruction during the 2022 energy crisis.
The strategists noted that a sustained and very large disruption of energy supply through the Strait could reduce global energy supplies by nearly 20%, would likely push oil prices above $110 per barrel and European natural gas prices above €100 per megawatt-hour.