Goldman Sachs warned in its March 20 flagship macro report "Top of Mind" that global assets have only fully priced in "inflation shocks" while completely ignoring the devastating impact of high energy costs on worldwide economic growth.

The report stated that the "deadlock" at the Strait of Hormuz suggests the conflict will be extremely difficult to resolve quickly. If market expectations prove wrong, "growth deterioration (recession)" will become the second shoe to drop, potentially triggering violent reversals in global asset pricing.

Given the risk of prolonged crisis, Goldman Sachs has comprehensively downgraded growth forecasts for 2026 in major economies including the United States and Eurozone, raised inflation expectations, and significantly delayed its prediction for the next Federal Reserve rate cut from June to September.

Notably, according to a March 22 CCTV News report, Iran's representative to the International Maritime Organization stated that Iran permits non-"enemy" vessels passage through the Strait of Hormuz, provided they coordinate security arrangements with Iranian authorities.

Why is a quick victory unlikely? The report identifies the Strait of Hormuz "deadlock" and the illusion of naval escorts as key obstacles.

Goldman Sachs argues the core uncertainty lies not in whether US forces can achieve tactical victory, but in when the "global energy chokehold" represented by the Strait of Hormuz might be resolved.

Former US Fifth Fleet Commander Donegan provided detailed data confirming US-Israeli military superiority in the report. However, military advantage cannot translate into war termination.

Chatham House Middle East Program Director Vakil believes Iran views this conflict as an "existential battle." Iran learned from its experience in the June 2025 "Twelve-Day War" that premature concessions revealed vulnerability. Consequently, Iran's current strategy employs asymmetric weapons like low-cost drones to wage a protracted war, spreading costs broadly until obtaining security guarantees ensuring the Islamic Republic's long-term survival.

Vakil emphasized: "Until Iran sees a credible path toward these guarantees, it has no motivation to end this war."

Furthermore, Iran's command structure proves more resilient than markets assume. Vakil noted the Islamic Revolutionary Guard Corps manages daily defense through a decentralized "mosaic command structure," with this bureaucratic system remaining operational.

Former US Middle East envoy Ambassador Dennis Ross revealed another deadlock from Washington's perspective: were it not for Iranian control of the Strait of Hormuz, Trump might have already declared victory. While Trump could reasonably claim Iran poses no conventional threat to neighbors for at least five years, "as long as Iran controls who exports oil and transits the strait, he cannot declare victory and disengage."

Ross suggested Russian President Putin's mediation might offer the fastest resolution given US inability to capture coastal territory. However, current conditions for mediation are unfavorable, particularly after the recent killing of former parliament speaker Ali Larijani, a key figure capable of coordinating factions including the IRGC. This leadership vacuum significantly reduces short-term peace agreement probability.

Can naval escorts break the physical supply disruption? Donegan's assessment was stark: while capable of providing escorts, capacity falls short of restoring normal flow. Despite US and allied commitments and 15 years of related exercises, Donegan emphasized escort models inherently lack economies of scale.

He estimated military escorts could restore at most 20% of normal oil flow, with land pipelines adding 15-20%, leaving a substantial gap. Supply restoration lacks an "on/off switch," with ultimate control resting with Iran: "This isn't purely a military issue, but a game of motivations and leverage."

The energy disruption reaches historic proportions. Goldman Sachs commodity team data quantifies the impact: estimated Persian Gulf oil flow losses reach 17.6 million barrels per day, representing 17% of global supply—18 times the peak disruption from Russian oil in April 2022. Actual Strait of Hormuz flow has plummeted 97% from normal 20 million bpd to 600,000 bpd.

Although some crude reroutes through Saudi Arabia's East-West Pipeline and UAE's Habshan-Fujairah pipeline, Goldman estimates their combined redirection capacity maxes at 1.8 million bpd—insufficient to offset losses.

Goldman constructed three medium-term oil price scenarios:

Scenario 1: Pre-war flow restored within one month. Forecasts Q4 2026 Brent average at $71/barrel. Global commercial inventories would suffer 6% depletion, with IEA strategic petroleum releases and Russian floating storage absorption offsetting about 50% of the deficit.

Scenario 2: Disruption persists 60 days until April 28. Projects Q4 2026 Brent surging to $93/barrel. Inventory draw would expand to nearly 20%, with policy responses offsetting only about 30%.

Scenario 3: Extreme case combining 60-day disruption with long-term Middle East capacity damage. If post-reopening production remains 2 million bpd below normal, Q4 2027 Brent could reach $110/barrel.

Goldman warned that if low flows keep market focus on long-term disruption risks, Brent could surpass 2008's record high. Historical data shows after five largest supply shocks, affected countries' production averaged over 40% below normal four years later. With 25% of Persian Gulf production from offshore operations, engineering complexity implies prolonged recovery cycles.

LNG market crisis also demands attention. European TTF benchmark prices have surged over 90% since pre-conflict levels to €61/MWh. More critically, Qatar Energy CEO confirmed Iranian missile damage to the 77mtpa Ras Laffan LNG facility will shut 17% of Qatar's LNG capacity for 2-3 years.

Goldman noted if Qatar LNG outage exceeds two months, TTF prices could approach €100/MWh. The "largest-ever LNG supply growth wave" previously expected by 2027 now faces significant delay risk.

The US administration has deployed multiple policy tools: coordinating 172 million barrel SPR release, exempting Russian and Venezuelan oil sanctions, and suspending the Jones Act for 60 days. However, Goldman US chief political economist Alec Phillips noted US SPR inventory already sits below 60% capacity, projected to plunge to 33% by mid-year, limiting further release scope. While crude export禁令 remains "highly possible," it's not yet the base case.

The energy shock's macroeconomic impact is emerging. Goldman senior global economist Joseph Briggs proposed a key rule of thumb: every 10% oil price increase reduces global GDP by over 0.1%, raises global inflation by 0.2 percentage points, and increases core inflation by 0.03-0.06 percentage points.

By this measure, three weeks of disruption already drags global GDP by approximately 0.3%. Extending to 60 days would reduce global GDP by 0.9% and raise global prices by 1.7%. Combined with 51 basis points of global financial condition tightening since conflict onset, economic slowdown risks are accelerating sharply.

Yet Goldman chief FX and emerging market strategist Kamakshya Trivedi identified the most critical vulnerability in current market pricing: complete absence of "growth deterioration" risk pricing.

Trivedi analyzed that global assets have only traded this conflict as an "inflation shock." This manifests in hawkish rate repricing and FX movements strictly along terms-of-trade axes. This pricing logic implies a dangerous assumption—market conviction in short war duration.

Trivedi warned that if this optimism proves misguided and energy prices show persistence, markets will be forced to violently repricing global growth and corporate earnings downward. "Growth deterioration" would then become the second shoe to drop. Under this recession trading logic:

Relatively resilient developed and emerging market equities would face heavy selling pressure.

Pro-cyclical assets like copper and Australian dollar would suffer sharp declines.

Front-end yield hawkish pricing would reverse.

Japanese yen would replace US dollar as ultimate safe-haven during equity-bond selloffs.

The Middle East already feels the economic chill. Goldman MENA economist Farouk Soussa calculated Gulf Cooperation Council countries lose approximately $700 million daily in oil revenue alone. Two-month disruption would approach $80 billion total losses. Non-oil GDP declines in Oman, Saudi Arabia, and Kuwait could exceed pandemic-era drops. Amid capital flight and risk aversion, Egyptian pound has become the worst-performing frontier market currency since conflict began.

The core variable in this historic crisis is no longer US military firepower, but the Strait of Hormuz navigation timetable. Despite optimistic signals from Trump administration officials about war ending within "weeks," Goldman believes Iran's survival calculus, US political constraints, escort capacity limits, and absent mediation conditions all suggest disruption will last longer than market pricing implies.

Once this expectation corrects, investors will face not extended "inflation trading," but a shift to "recession trading." As Trivedi stated, growth deterioration may be the next shoe to drop.