The Strait of Hormuz has been closed for 10 weeks. Goldman Sachs: Three main reasons support this, with limited actual economic impact.

Since the U.S. and Israel launched attacks on Iran at the end of February, the closure time of the Strait of Hormuz has lasted for 10 weeks. Although global economists have been warning about the risks of the strait being closed for a long time, as of now, the damage the closure has caused to the global economy remains relatively limited.

On Monday in U.S. Eastern Time, Jan Hatzius (Chief Economist at Goldman Sachs) outlined three major reasons behind this, while also reminding that the current risks still tend to lead to more adverse outcomes.

“We believe there are three reasons why the 10-week closure of the Strait of Hormuz has caused relatively limited damage to global economic growth,” Hatzius wrote in a client report.

“First, the increase in oil prices has not been as large as people had been worried about. Part of the reason is that inventories were unusually high before the war; part of the reason is that the market still believes that extreme consumer price increases will ultimately prompt a shift in U.S. policy.”

“Second, actual fuel shortages in areas such as aviation fuel have been alleviated in the form of a ‘relatively painless demand reduction,’ including China’s large-scale shift to renewable energy and fewer flights on low-value global routes.”

“Third, fiscal policy, the AI boom, and generally looser financial conditions have played a buffering role throughout the year.”

In Goldman Sachs’s baseline scenario, it is expected that passage through the Strait of Hormuz will gradually resume, with the specific recovery expected to begin soon and be completed by the end of June.

Goldman Sachs expects Brent crude oil prices to remain stable in the short term, and then to fall to $90 per barrel by the end of the year.

Goldman Sachs has lowered its probability of a U.S. economic recession over the next 12 months by 5 percentage points to 25%, citing robust growth in U.S. domestic private consumption in the first quarter, and the addition of 115,000 non-farm payroll jobs in April, which exceeded expectations.

However, Hatzius reminds that the risk of a U.S. recession remains 5 percentage points higher than pre-war levels. Consumers still face many unfavorable factors, including a gradual decrease in tax refund amounts, rising gasoline prices, slower wage growth, and a personal savings rate that has already fallen to 3.6% (the lowest level in three years).

(Source: Cailian Press)