MW Goldman cuts U.S. economic outlook over the Iran war - and the fear goes beyond oil

By Steve Goldstein

Every 10% rise in oil increases inflation by two-tenths, Goldman calculates

The outlook for economic growth was cut by Goldman, which sees a 25% chance of a recession over the next 12 months.

Things aren't looking so great on the economic front 12 days into the U.S.-Israeli attack on Iran. Not only did oil prices again touch triple-digit levels, there are worries about supplies of everything from fertilizer to helium, important not just for party balloons, but semiconductor production.

Goldman Sachs economists Manuel Abecasis and David Mericle in a new research note looked at the economic implications of the Iran war on the U.S. economy.

And, to be clear, the main risk really is oil. "The main transmission channel from the war with Iran to the U.S. economy is the price of oil," they said. Goldman's oil team just raised their forecasts for the second time in little over a week, now expecting the Brent contract (BRN00) to average $98 for March and April - up 40% from the 2025 average.

Their rule of thumb is that a sustained 10% increase in oil boosts the inflation rate by 0.2 percentage points, and the core inflation rate by 0.04 points. Similarly, a sustained 10% rise in oil lowers GDP growth by a tenth, though that could be tempered depending on how domestic producers respond.

The impact of tighter financial conditions also weighs on the economy. For every 1 percentage point tightening in their financial conditions index, GDP growth is hurt by 1 point over the following year. So far, Goldman's financial conditions index has tightened by 0.2 percentage points.

But the economy can be impacted by more than just swings in financial markets. The Goldman team cite Federal Reserve research that higher geopolitical risk weighs on both hiring and capital expenditure. When the shocks to geopolitical risk and oil prices occur simultaneously -- like right now - the impact is twice as large. Higher geopolitical risk and oil prices also weigh on consumer confidence, although only briefly, the research finds.

Granted, there are some ameliorating factors too. The U.S. economy is less reliant on oil than it was during the supply shocks of the 1970s. The stock market, as measured by the S&P 500 SPX, is only down 1% this year, so there's no significant negative wealth effect, so far. The U.S. economy also is less sensitive to the most relevant chokepoints of the Strait of Hormuz and Red Sea shipping, which account for less than 5% of international trade.

Putting it all together, here's the Goldman economic forecast.

Inflation, as measured by the PCE price index that the Fed favors, will reach 2.9% year-on-year in December, which is 0.8 percentage points higher than the firm previously forecast (and well above the Fed's 2% target). Goldman's core inflation forecast also rose, by a more modest two-tenths of a point, to 2.4%. That will take the fourth-quarter GDP year-on-year forecast down by three-tenths, to 2.2%. The unemployment rate will peak in the fourth quarter, at 4.6%, and the risk of recession over the next 12 months is 25%, which the firm says is right in line with the Wall Street consensus.

It also means the Federal Reserve will be slower with rate cuts. The two cuts they forecast for June and September are now seen for September and December. That said, earlier cuts are still possible if the labor market weakens sooner, or more substantially, that they expect.

The market

U.S. stock futures (ES00) (NQ00) slumped as the price of Brent rose as high as $101 per barrel. Bitcoin (BTCUSD) was trading around $70,000.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6775.8     -1.36%  -2.39%  -1.02%  21.01% 
   Nasdaq Composite                                                     22,716.13  -0.40%  -1.52%  -2.26%  28.71% 
   10-year Treasury                                                     4.222      8.20    11.80   5.00    -5.10 
   Gold                                                                 5191.4     1.93%   5.06%   19.83%  72.97% 
   Oil                                                                  92.03      16.66%  46.29%  60.30%  37.85% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Iran's president said it would seek reparations to end the conflict as the country struck an oil terminal in Oman and two tankers off the coast of Iraq. The International Energy Agency said global oil supply will fall by 8 million barrels a day in March, while oil demand will fall by around 1 million barrels.

Fertilizer makers CF Industries $(CF)$ and Mosaic $(MOS)$ rose on expectations of higher prices.

Morgan Stanley $(MS)$ said it won't meet all the redemption requests for one of its private-credit funds it manages.

UiPath (PATH) shares fell as the automation software company forecast revenue growth.

Adobe $(ADBE)$ financials are coming after the close.

Data on jobless claims, the trade deficit and housing starts will be released at 8:30 a.m. Eastern.

Best of the web

Goldman executive says private-markets clients are 'glad' about Iran war distraction.

Iran expands war with major cyberattack against U.S. company.

Why the only acceptable behavior from a rational and intelligent American is to loot the place and leave.

The chart

Analysts at Strategas calculate that a $20 increase in the average price of oil this year would result in a roughly $160 billion hit to the economy. While they say that is "certainly not fatal," it would also sterilize the positive impact on individual taxpayers from the One Big Beautiful Bill.

Top tickers

Here were the top performing stock-market tickers on MarketWatch as of 11 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing Co. 
   NIO     Nio 
   ORCL    Oracle 
   HIMS    Hims & Hers Health 
   PLTR    Palantir Technologies 
   MU      Micron Technology 
   AMZN    Amazon.com 

Random reads

A statue of President Donald Trump and convicted sex offender Jeffrey Epstein in a Titanic pose appeared on the National Mall, to mixed but not entirely negative reviews.

Katy Perry, the pop star, suffered a legal defeat, to Katie Perry.

One owl was found napping - in an antiques store.

BEYOND THE NEWSROOM

MarketWatch Picks: Nearly half of new $1M+ mortgages are ARMs: Here's why rich people are embracing adjustable-rate mortgages

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 12, 2026 07:29 ET (11:29 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.