Conflict Escalates: Trump Issues Ultimatum as Goldman Warns of Record $147 Oil

TradingKey - Middle East conflict escalated sharply this weekend. Brent crude rose more than 1% intraday, with oil prices soaring to nearly $109 as of writing.

On the 22nd, U.S. Treasury Secretary Bessent stated that the U.S. is destroying various Iranian facilities. Additionally, options such as deploying U.S. troops to control Iran's oil hub, Kharg Island, are under consideration. Bessent noted that sometimes one must "escalate to de-escalate." On the 21st, Trump posted on his social platform Truth Social, demanding that Iran fully open the Strait of Hormuz within 48 hours, or the U.S. would strike and destroy various power plants within Iran, starting with the largest one.

Trump's 48-hour ultimatum is set to expire Monday evening Eastern Time. Consequently, WTI crude oil has returned above the $100 mark, with Brent crude reaching an intraday high of $109.09.

The U.S.-Iran conflict has entered its fourth week with no signs of the hostilities easing. Goldman Sachs (GS) has once again raised its oil price forecasts, warning that in an extreme scenario, oil prices could break the historical record of $147.

Severe Strait Disruptions Make Long-Term Recovery Difficult

In their latest crude oil market report, Goldman Sachs analyst Daan Struyven and his team forecast that the average price of Brent crude will reach $110 in March and April this year, a significant increase from the previous forecast of $98 and a 62% jump compared to the full-year 2025 average. The 2026 full-year Brent price forecast was raised to $85, while the 2027 average is expected to remain high at $80.

Goldman Sachs stated that the sharp upward revision in price forecasts is based on adjusted expectations for traffic through the Strait of Hormuz. Currently, Goldman assumes that oil shipments through the Strait of Hormuz will remain at only 5% of normal levels for six weeks, with an additional month required to restore transport—a scenario more severe than previously anticipated.

Furthermore, Goldman believes the market now recognizes the risks associated with the high concentration of production and spare capacity, which could lead to higher strategic petroleum reserves in the future and a long-term rise in forward prices.

Goldman hypothesized two extreme scenarios, both assuming a 10-week disruption in the Strait of Hormuz. In both cases, Brent crude prices could surpass the record of $147 set in 2008, pushing global oil prices into uncharted territory.

In one scenario, Middle East supply gradually recovers after the strait reopens. Brent prices could average $140 in April, then converge to $100 by the fourth quarter of 2026 and to $90 by the fourth quarter of 2027.

In a severely adverse scenario, if there is a sustained loss of 2 million barrels per day in Middle East production capacity, with affected countries facing a 42% average output hit after four years, Brent crude would decline more slowly after peaking, converging to $115 by Q4 2026 and to $100 by Q4 2027.

Beyond predicting that oil prices could break all-time highs, Goldman also believes that, in the long term, it will be harder for prices to fall back. Goldman noted that prices will not quickly drop to pre-war levels once the strait reopens, raising its 2026 average price forecasts for Brent from $77 to $85 and for WTI from $72 to $79.

The reason is that this represents the largest oil supply shock in history, with the current crude export shortfall in the Persian Gulf estimated at 17.6 million barrels per day. This not only implies a supply shortage but also prompts policymakers and markets to re-evaluate the risks of concentrated Middle East capacity, leading the market to price a security premium into long-term oil forwards. Additionally, this shock may drive nations to replenish their Strategic Petroleum Reserves (SPR), creating long-term additional demand, which serves as another driver for oil prices.