Goldman Sachs: Geopolitical Risk Could Send Oil Prices Even Higher
The two-day oil price rally on Friday and Monday following the latest U.S. sanctions on Russia’s oil exports goes to show that geopolitics will continue to play a key role in oil price action and market balances this year.
The price rally, which pushed oil to four-month highs, could just be a knee-jerk reaction until tanker supply chains adapt to the latest sanctions move. Nevertheless, these geopolitical forces cannot be ignored by market participants, and speculators are awaiting the next wave of geopolitical decisions by the incoming Trump Administration.
There is no doubt there will be major changes in the U.S. domestic energy policy with a President strongly supporting fossil fuels to contribute to America’s “energy independence.”
President-elect Trump’s foreign policy is more difficult to predict. Still, it will surely have an effect on the global economy and the oil market because of the near- to medium-term trade policies and further sanctions that could see Iran’s supply restricted.
Geopolitical events tend to impact oil prices, and they will continue doing so this year, according to Goldman Sachs.
The Wall Street bank expects Brent Crude prices to trade in a range of $70-$85 per barrel and average about $76 this year, Goldman Sachs Research said in a note last week.
Oil prices are set to be heavily influenced by the production growth rates in non-OPEC countries and potentially also by geopolitical factors — from sanctions to tariffs, according to Daan Struyven, co-head of Global Commodities Research and head of Oil Research at Goldman Sachs.
“Energy prices are impacted by geopolitical events, which can be difficult to predict, and could cause prices to break out of the $70-85 range,” said the investment bank.
A day after Goldman Sachs published its note on Thursday, the outgoing U.S. Administration on Friday imposed the most severe sanctions on Russia’s oil yet, designating two major Russian oil companies, Gazprom Neft and Surgutneftegas, as well as 183 vessels, dozens of oil traders, oilfield service providers, insurance companies, and energy officials.
Oil prices rallied on the news, with Brent Crude breaking above $81 per barrel and the U.S. benchmark, WTI Crude, approaching the $80 a barrel mark at $79 on Monday.
The latest U.S. sanctions pushed oil to a four-month high and toward the upper end of Goldman Sachs’s forecast range of $70 to $85.
The sanctions are already causing ripples in India, where Russia has become the single biggest supplier to refiners in the three years after the Russian invasion of Ukraine and the Western sanctions and embargoes on Russia’s petroleum.
India’s refiners have stopped doing business with the Russian tankers and companies sanctioned by the U.S. on Friday, a source at the Indian government told Reuters on Monday.
Despite the hefty sanctions, the world’s third-largest crude importer doesn’t expect major disruptions during the two-month wind-down period until March.
The U.S. sanctions are putting about 700,000 barrels per day (bpd) of Russian crude exports at risk, but the losses to the market will likely be smaller, Warren Patterson, Head of Commodities Strategy at ING, said.
“Some buyers may choose to ignore these sanctions, and Russia may also rely more heavily on those tankers in the shadow fleet that are not sanctioned to continue the trade,” Patterson noted, adding that Russia may have to increase its fleet size in order for flows to continue uninterrupted.
Surplus Vanishing?
The loss of some Russian supply could reduce or even wipe out the currently expected surplus in the oil market, analysts say.
Before the latest U.S. sanctions, Goldman Sachs Research forecast a modest surplus of 400,000 bpd for 2025.
The potentially smaller surplus, combined with the high spare capacity at OPEC+ producers, could again cap oil prices this year, according to the bank.
“High spare oil capacity is likely to restrict oil prices from climbing substantially this year in spite of continued solid demand,” Goldman Sachs said, adding that it expects global oil demand to continue growing for at least another decade.
Sanctions on Iran
The bearish factor of high OPEC spare capacity will clash this year with the bullish factor of what is expected to be a “maximum pressure” campaign on Iran from President Trump.
If Iranian oil supply drops by 1 million bpd, the price of Brent could rise to the mid-$80s per barrel by the middle of 2025, assuming that OPEC+ increases its supply throughout the year, Goldman Sachs reckons.
“Hawkish comments on Iran from some US policy nominees suggest that a substantial drop in Iran oil exports is plausible. But any drop would likely be smaller than in 2018-2019, because China now has a 90% share of Iran’s oil exports,” the bank said.
If a 1-million-bpd loss from Iran for six months materializes, Brent could jump to nearly $90 per barrel. And that’s assuming OPEC+ quickly increases oil supply to offset the shortfall from Iran, according to Goldman Sachs Research.
Tariff Threat
Sanctions and their stricter enforcement would be bullish drivers for oil this year, but another geopolitical factor – President Trump’s trade policy – could be a bearish drag on the global economy and oil prices.
“Broader-than-expected tariffs from US President Donald Trump’s administration could drive down the price of oil in the medium term,” Goldman Sachs said.
The bank estimates that Brent could drop to the low $60s by the end of 2026 in a scenario where the U.S. imposes tariffs of 10% across the board.