Goldman Sachs has issued a stark warning: oil prices could surge to $120 a barrel if the Strait of Hormuz remains closed. The bank's scenario targets West Texas Intermediate crude reaching that level by July 2026. The warning comes as prediction markets assign a 0.9% probability to such an outcome.
The warning and the scenario
In a recent note, Goldman Sachs laid out a specific case where WTI crude oil climbs to $120 per barrel. The trigger is a sustained closure of the Strait of Hormuz, the narrow waterway that handles about a fifth of the world's oil supply. The bank's analysts modeled the impact of a prolonged disruption, not a brief one. The July 2026 timeline suggests the bank expects the effects to compound over months, not days.
The $120 figure is not a forecast. It's a conditional warning — what could happen if the strait stays shut. The bank is not predicting that will happen. But it wants clients to understand the potential scale of the risk.
Probability and market view
Prediction markets currently put the odds of such a closure at less than 1%. That 0.9% figure means traders see it as a tail risk — unlikely but not impossible. The low probability may reflect the fact that no major power has an interest in shutting the strait permanently. Still, the market is pricing in a non-zero chance.
Goldman Sachs's warning is notable because it quantifies the impact of a low-probability, high-consequence event. For investors, the message is clear: even a small risk of a Strait of Hormuz closure carries a big potential price tag.
What the warning means for oil markets
Oil prices have been volatile in recent months, but a move to $120 would represent a dramatic spike. At that level, it would strain economies that rely on cheap crude and could push inflation higher. The warning also highlights how dependent global oil markets remain on a single chokepoint.
The Strait of Hormuz connects the Persian Gulf to the open ocean. Any disruption there — whether from military conflict, political brinkmanship, or accidents — would cut off a huge chunk of supply. The bank's analysis assumes that disruption lasts long enough to drain inventories and force prices up.
For now, the market is watching. The 0.9% probability is a number that could shift quickly if tensions in the region escalate. Traders will be looking for any signs of movement — diplomatic talks, naval deployments, or new sanctions — that might change those odds.
