Goldman Sachs says war in Iran is unlikely to trigger a supply chain crisis like COVID

I war in Iran is driving up oil and gas prices, and while the global economy is dealing with an energy price shock, an analysis by Goldman Sachs finds that the conflict is unlikely to lead to a broader supply chain crisis like the one that occurred due to the COVID-19 pandemic.

Economists at Goldman Sachs found that the Iran war is expected to lead to higher oil prices that will reduce global economic growth by 0.3% of GDP while increasing inflation by 0.5% to 0.6% next year, with a modest 0.1% to 0.2% increase in inflation.

The report noted that the risks are tilted towards major impacts as long as the Strait of Hormuz remains closed to shipping. The Strait is a small bottleneck through which shipping traffic from the Persian Gulf must pass in order to access the world’s sea lanes.

Goldman Sachs has assessed that the world’s central banks will be more sensitive to inflationary pressures following the supply disruptions caused by the pandemic and have a significant impact inflation. However, economists’ analysis sees the shock of the Iran war as limited to energy as opposed to a broader supply chain.

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“The main difference between 2021-2022 and today, however, is that today’s shock is concentrated in the energy sector, while the energy price spike in 2022 was one part of a much broader global supply and inflation crisis,” Goldman Sachs write economists.

One of the reasons for the shock is that the supply is limited energy products that most developed economies around the world have limited exposure to non-energy trade in Middle Eastern countries.

The report found that less than 1% of exports to the US and other developed markets such as the Eurozone, the UK, Japan and Canada come from Middle East. By comparison, China and East Asia account for more than 20% of global trade, Goldman’s analysis noted.

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One of the reasons why supply shocks are limited to energy products is that most advanced economies have limited exposure to non-energy trade in Middle Eastern countries. (Giuseppe Cacace/AFP via Getty Images)

Another exception to the 2021-2022 supply chain problems is that few disruptions of the installed materials and “the right time” of the supply chain are expected, since the analysis found that the potential shipment of the bottle to the Middle East is focused on certain chemicals and metals that are likely to cause major disruptions.

Goldman Sachs said methanol appears to be the most likely source production disruptionas it is used to make acetic acid, which helps produce industrial adhesives, solvents and paints.

Iran is the source of about 20% of the world’s manufacturing capacity and although the loss of that supply could have an impact in the long run, economists see no clear choke points at this time.

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Ships passing through the Strait of Hormuz are at risk of attack by Iran. (Fox Stories)

A third reason the company sees limited supply chain impacts beyond the energy sector is that the Middle East is not a priority. a hub of commerce where products are also exported.

Vessels such as barges, tugboats and floating cranes are the main commodities re-exported from Middle Eastern countries.

“In summary, our analysis suggests that the main risks to global supply and inflation are largely dependent on energy, which reduces the risk of major disruptions to the supply chain (and the accompanying increase in inflation) and the major effects of the second round of inflation seen in 2021-2022 will reappear,” said Goldman Sachs economists.

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