This week, central banks around the world are closely monitoring how the ongoing Iran conflict could impact inflation, but analysts at Goldman Sachs suggest the shock will be much narrower than the sweeping inflation spike seen after the Covid-19 pandemic. According to Goldman, the primary area of impact will be in energy markets.
Goldman projects that higher oil prices, triggered by the conflict, could trim global GDP growth by approximately 0.3% and push headline inflation up by about 0.5 percentage points in the coming year. While there are concerns that disruptions near the strategic Strait of Hormuz could also affect chemicals and metal markets, Goldman estimates the resulting increase in global inflation would be minimal—only about 0.1 percentage points, as suggested by current market prices.
Importantly, the report highlights that the Middle East contributes only 1% to global non-energy exports. This is a significant contrast to the more than 20% of global trade that was affected during the widespread pandemic-related shutdowns across Asia. As a result, Goldman Sachs believes the inflationary impact of the Iran conflict will remain predominantly limited to the energy sector, with limited spillover to the broader global economy.
