Recession risks have come down significantly from their peak in April after Donald Trump’s tariff announcements, but the Israel-Iran conflict has ignited fresh concerns about the path of global economic growth.
After US airstrikes on Iran’s nuclear facilities over the weekend, markets are worried about Iran blocking the Strait of Hormuz, one of the world’s most important oil-shipping chokepoints. Over the weekend, the odds of Iran closing the Strait of Hormuz spiked to over 50% on Polymarket.
The risk of further military escalation is a major reason Goldman Sachs said that it hasn’t cut its recession probability, which hovers at 30%.
With roughly 20% of the world’s oil passing through the strait, a closure would bottleneck oil supply and send oil prices, and subsequently inflation, higher.
At current levels around $73 a barrel of US oil and $76 a barrel for Brent, crude oil prices have increased around $10 per barrel since early June, which wouldn’t be enough to pose a big threat to inflation and GDP growth, Jan Hatzius, the bank’s chief economist, wrote in a note over the weekend.
However, he sees the possibility of a much larger price move “in a tail scenario where the conflict expands significantly further and/or the Strait of Hormuz is closed. In that tail scenario, the risk of recession would climb sharply.”
In a worst-case scenario, oil volumes through the Strait of Hormuz could decrease by 50% for one month, then remain down 10% for another 11 months, Goldman Sachs commodities analysts predicted.
That would lead Brent oil prices to peak at $110 per barrel before coming down to $95 per barrel in the fourth quarter of 2025.
While Goldman Sachs’ base case assumes Brent oil prices fall to $60 by year-end and deliver a modest boost to GDP growth, disruption in the energy supply could reduce global growth by 0.3 percentage points and send inflation rising by 0.7 percentage points.
Goldman Sachs
With regards to markets, Morgan Stanley also sees rising oil prices as a potential negative catalyst that sparks a potential 19% drop in the S&P 500. According to Mike Wilson, the bank’s chief investment officer and chief equity strategist, a 75% year-over-year rise in oil prices has historically been disruptive enough to impact the business cycle and lead to a recession.
Morgan Stanley
Some forecasters see the potential for an even higher spike in crude prices.
A 75% increase in oil prices isn’t off the table, JPMorgan said. Commodities analysts at the bank see a 21% chance of a major disruption to energy production in the Persian Gulf, which could cause oil prices to rise to $120-$130 a barrel.
However, such a scenario is not the bank’s base case. JPMorgan sees crude oil averaging down to around $60 a barrel by the end of the year and into 2026, barring severe geopolitical escalation.
Morgan Stanley’s Commodities Strategist Martijn Rats believes a 75% spike in oil prices would only emerge as a result of prolonged supply disruption in the Strait of Hormuz.
“Thus, while we’re respectful of the risks, there’s a long way to go on this basis,” Wilson wrote.
