Goldman Sachs "Tears Report": If the Strait of Hormuz does not "recover as scheduled" in the next few days, the "significant upside risk" to oil prices will rapidly increase

On March 7, according to Chasing Wind Trading Desk, Goldman Sachs’ Commodities Research Team quietly “overturned” their previous optimistic outlook in their latest oil report released on March 6 — the baseline scenario was based on the assumption that Strait of Hormuz flows would “gradually return to normal within the next few days.”

As previously mentioned in Wallstreetcn, Goldman Sachs’ Chief Oil Strategist Daan Struyven predicted in a March 4 report that the blocked Strait of Hormuz oil transportation would remain at an extremely low level for the next five days, then recover to 70% of normal capacity within two weeks, and reach full normalization at 100% in four weeks. However, the latest data shows the situation is far more severe than expected.

Goldman Sachs explicitly states in the latest research report: “If there are no signs of flow normalization in the coming days, we will immediately revise our oil price forecasts.” More importantly, the report points out that upside risks are ‘rapidly expanding’, and provides price judgments under extreme scenarios:

If no solution is seen within this week, oil prices are likely to break $100 next week; if flows remain subdued throughout March, prices (especially refined products) could surpass the peaks of 2008 and 2022.

The report indicates that upside risks for energy assets are accumulating at an unprecedented speed, and Goldman Sachs’ four reasons are gradually undermining the previous “rapid recovery” assumption.

Reason 1: Strait flow decline far exceeds expectations, worse than assumed

Goldman estimates that normal Strait of Hormuz oil flow is about 20 million barrels per day (20 mb/d), with crude and condensate around 14 million barrels/day, refined products about 4 million barrels/day, and liquefied natural gas (NGL) about 2 million barrels/day.

Current actual data is shocking: the daily flow has dropped about 90% from normal levels, reducing roughly 18 million barrels/day (18 mb/d).

This figure is below Goldman Sachs’ baseline assumption of an “85% decline (about 15% of normal levels).” In other words, the actual situation is worse than Goldman’s pessimistic scenario. This means the risk around the baseline scenario is shifting further toward “lower flows for a longer duration.”

Reason 2: Limited capacity for alternative rerouting, actual reroute only 0.9 mb/d

In the face of Strait blockage, markets hoped pipelines and alternative ports could make up the shortfall. Theoretically, Saudi Arabia’s east-west pipeline (to Port of Yanbu on the Red Sea) and UAE’s Habshan-Fujairah pipeline (to the Gulf of Oman) combined have an estimated backup capacity of 4 million barrels per day (3.6 mb/d).

However, Goldman’s tracking data shows that over the past four days, net rerouted flows through pipelines and ports (Yanbu in Saudi Arabia and Fujairah in Oman/UAE) have only increased by about 900,000 barrels per day (0.9 mb/d), far below the theoretical maximum.

The reasons for this large gap include:

• Attacks on Fujairah port and storage facilities this week, directly impairing alternative export capacity;

• Local shortages of shipping fuel (usually imported from the Persian Gulf via the Strait of Hormuz), preventing ships from operating normally;

• Previous pipeline attacks, further constraining rerouting potential.

This indicates that the market’s “pipeline backup” expectation is seriously overestimated, with actual buffer capacity being very limited.

Reason 3: Rapid solutions are not necessarily imminent; shipowners are in a wait-and-see mode

Goldman’s discussions with market participants reveal that most shipowners are currently in a “wait-and-see” stance, mainly because the physical risks within the Strait remain extremely high.

Notably, Goldman’s analysis excludes “insurance costs” as the main reason for flow collapse. Data shows that some insurance options are still available, and from a purely economic perspective, transiting the Strait remains profitable amid sharply rising freight rates — even though war risk premiums have increased significantly (currently about 3%, with a historical high of 7.5% during the Iran-Iraq war in the 1980s).

This finding points to a more concerning conclusion: the core factor preventing ships from passing is physical safety risk, not economic cost. As long as physical risks are not eliminated, economic incentives alone cannot restore flow.

Goldman lists three possible paths for flow recovery:

2. Overall de-escalation of conflict (ceasefire or diplomatic resolution);
3. U.S. providing strong escort protection for ships;
4. Iran allowing safe passage for certain origin/destination ships (including China).

Based on various statements (see table below), the expected duration of ongoing conflict varies from 10 days to over a month, with significant divergence, further increasing market uncertainty:

Reason 4: Unprecedented scale of supply shock, demand destruction pricing to arrive faster than history

Goldman emphasizes that this supply shock is unmatched in history.

Total impact on Persian Gulf oil supply has reached 17.1 mb/d, which is 17 times the peak Russian production decline in April 2022. Meanwhile, total exports from the Persian Gulf have fallen 74% from normal levels, leaving only about 6 million barrels per day.

Goldman points out that due to the unprecedented scale of the shock, the market will start pricing in demand destruction faster than historical experience and simple models suggest, for two reasons:

2. Rapid depletion of inventories: The larger the shock, the earlier the market begins to price demand destruction while inventories are still relatively high, rather than waiting for inventories to bottom out;
3. Acceleration factors: Hoarding behavior by consumers and reductions in refined product exports by non-OECD countries (e.g., China reducing exports to secure domestic supplies) will further accelerate inventory depletion in OECD countries.

The core of Goldman’s “tear-up” report: the baseline assumptions are being shattered by reality

Understanding this report hinges on comparing it with Goldman’s previous optimistic outlook.

As previously reported by Wallstreetcn, Goldman’s strategy team had taken a contrarian bullish stance amid market turmoil, believing this correction was a buying opportunity, with one key support being the optimistic expectation of a “return to normal within four weeks” for the Strait of Hormuz. Chief Oil Strategist Daan Struyven’s previous path was: Flow would stay at about 15% of normal for an additional five days, then recover to 70% within two weeks, and reach 100% in four weeks.

Based on this assumption, Goldman raised its Q2 Brent crude forecast to $76/barrel, WTI to $71, and its Q4 2026 Brent forecast from $60 to $66.

However, the March 6 report actually publicly questions its own assumptions with the latest data:

• Actual flow (around 10% of normal) is below the assumed 15%;
• Alternative rerouting (0.9 mb/d) is far below potential (3.6 mb/d);
• Rapid solutions are not necessarily imminent;
• The scale of impact exceeds all comparable historical scenarios.

Goldman explicitly states that if no signs of flow normalization appear in the coming days, they will soon revise their oil price forecasts upward. This is effectively a warning to the market: a more aggressive upward revision could come at any time.

However, Goldman also noted in previous reports that if U.S. escort plans or diplomatic efforts succeed, enabling rapid flow recovery, the current risk premium could quickly evaporate, with Brent prices potentially falling by $12 to $15 per barrel.

Currently, 12 oil tankers have been attacked in the Strait of Hormuz and surrounding waters (from March 1 to 6), with no confirmed attacks on Asian-flagged vessels so far — this detail may be a key variable influencing the situation’s trajectory.

This insightful content is from Chasing Wind Trading Desk.

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