Goldman Sachs Projects Oil at $110 Through 2027 as Supply Shock Rewrites Macro Baseline

Goldman Sachs now projects Brent crude will remain above $110 per barrel through 2027 in worst-case scenarios, abandoning pre-war forecasts of $50-70 oil as the Strait of Hormuz disruption exposes structural fragility in global energy markets.

The revised outlook, published 20 March 2026, reflects a fundamental reassessment of supply-demand dynamics following the 28 February onset of US-Israeli strikes on Iran. Brent crude traded at $110.20 per barrel and WTI at $95.90 on Friday, according to CNN Business—levels 36% and 39% higher respectively than pre-conflict prices. Goldman’s base case now anticipates Brent at $71 per barrel by Q4 2026, but assigns significant probability to a risk scenario of $93 if Hormuz disruptions persist beyond two months. The bank’s worst-case trajectory puts Brent around $111 by Q4 2027 if regional production remains constrained at 2 million barrels per day post-reopening.

The shift marks the end of a two-decade assumption that shale abundance and OPEC spare capacity would cap prices during crises. Instead, the current shock—which has eliminated roughly 20% of global oil transit capacity through the Strait of Hormuz—landed on a market already weakened by systematic underinvestment. The oil industry has been running a $300-400 billion annual capital shortfall relative to requirements for maintaining output amid 5-6% natural field decline rates, per Discovery Alert analysis. US shale growth is slowing, discoveries have collapsed, and OPEC spare capacity—long the market’s shock absorber—is constrained by members’ own infrastructure limitations.

Hormuz Disruption Eliminates 7-10 Million Barrels Daily

The immediate trigger for Goldman’s revision was the scale of production shutdowns following Iranian retaliation on Gulf energy infrastructure. Saudi Arabia shut the Safaniya, Marjan, Zuluf and Abu Safa offshore fields, curtailing 2-2.5 million barrels per day, according to Argus Media. Total Middle Eastern output cuts reached 7-10 million barrels per day due to production halts and logistics constraints. The International Energy Agency estimates 4.2 million barrels daily can be redirected through existing pipelines, leaving roughly 16 million barrels per day stranded without Hormuz transit.

Qatar’s liquefied natural gas export capacity dropped 17% following missile attacks on processing facilities, with repairs projected to take up to five years. The Strait of Hormuz normally handles 20% of global oil supplies and 20% of global LNG volumes, making it the world’s most critical energy chokepoint. Goldman modeled a scenario requiring 254 million barrels from strategic petroleum reserves and 31 million barrels per day of additional Russian crude to offset just half of commercial inventory drawdowns.

The US committed to releasing 172 million barrels from its Strategic Petroleum Reserve, while IEA member countries agreed to a coordinated 400 million barrel release—the largest emergency drawdown since the reserve system’s creation. California gasoline prices surged above $5 per gallon during the second week of March, while the US national average climbed to $3.84 from $2.92 a month earlier, per Al Jazeera.

Fed Delays Rate Cuts as Energy Shock Reignites Inflation

The energy price surge forced an immediate recalibration of Federal Reserve policy. Goldman pushed its first rate-cut forecast from June to September 2026, followed by a December reduction—a timeline echoed by the Fed’s own March projections showing just one 0.25% cut in 2026, according to CNBC. The central bank held rates at 3.5-3.75% at its 18 March meeting and revised headline PCE Inflation forecasts from 2.4% to 2.7% for 2026, with core PCE inflation also climbing from 2.5% to 2.7%.

Goldman estimates a 10% rise in oil prices lifts headline PCE inflation by approximately 0.2 percentage points while reducing GDP growth by roughly 0.1 percentage points. The bank’s March revision raised December 2026 headline PCE inflation projections by 0.8 percentage points to 2.9% and cut GDP growth by 0.3 percentage points to 2.2% on a Q4/Q4 basis, per TheStreet. The firm also raised twelve-month recession odds to 25%.

Fed Chair Jerome Powell acknowledged the uncertainty at the March press conference: “We have an energy shock of some size and duration. We don’t know what that will be,” he told reporters, according to U.S. Bank. Powell added that “the forecast is that we will be making progress on inflation, not as much as we hoped”—a departure from the confident disinflation narrative that had dominated Fed communications since mid-2025.

Structural Underinvestment Turns Commodity Into Leverage

The price shock’s persistence reflects supply-side fragility built over a decade. Global oil discoveries collapsed from 30 billion barrels annually in the 2000s to under 10 billion in recent years, while production from existing fields declines 5-6% per year without continuous drilling. US shale output, which grew 8-10% annually from 2010-2019, is now expanding at just 2-3% as operators prioritise shareholder returns over volume growth and tier-one acreage depletes.

OPEC+ has maintained roughly 5.86 million barrels per day of production cuts—equivalent to 5.7% of global demand—since 2023, with flexible unwinding conditional on market stability, according to Middle East Insider. But the cartel’s spare capacity to respond to disruptions has narrowed. Saudi Arabia’s swing producer role depends on offshore fields now offline, while other members face infrastructure constraints that limit rapid production increases.

“The industry is underinvesting for the future,” Robert McNally of Rapidan Energy Group told Petroleum Economist in a 2025 outlook that proved prescient. The capital discipline that pleased equity investors has left the market structurally short—turning commodity supply into geopolitical leverage and exposing advanced economies to energy inflation shocks they lack tools to counter.

What to Watch

The trajectory of Hormuz transit restoration will determine whether Goldman’s base or risk scenario materialises. Iranian and Gulf state willingness to negotiate safe passage, backed by credible security guarantees, remains uncertain. Watch for signs of diplomatic progress or escalation that could shift reopening timelines.

Corporate earnings calls in late April will reveal margin compression in transport-intensive sectors—airlines, logistics, chemicals, manufacturing—where energy represents 15-30% of operating costs. Energy transition investment flows merit close attention: sustained $100+ oil makes renewables and electrification cost-competitive without subsidies, potentially accelerating adoption timelines previously forecast for the 2030s.

Emerging market currencies face acute pressure under sustained energy inflation. Countries running current account deficits and holding dollar-denominated debt—Turkey, Pakistan, South Africa—will struggle with import costs and debt service simultaneously. Central banks in these economies may be forced to choose between defending currencies through rate hikes or accepting inflation pass-through to preserve growth.

Finally, monitor US Strategic Petroleum Reserve levels. The 172 million barrel commitment represents roughly one-third of remaining capacity. If the disruption extends into Q3 2026, Washington faces a choice: continue drawdowns and deplete the strategic buffer, or accept higher domestic prices and risk political backlash heading into election season. That decision will signal whether energy security or inflation management takes priority in US policy calculus.