Is the era of high oil prices approaching? Goldman Sachs has released multiple reports focusing on the energy market. What impact will this have on China?

The changing situation in the Middle East continues to disrupt the global energy markets. Since March, international oil prices have increased by over 30%, significantly impacting economies and related industries worldwide.

Recently, major international investment bank Goldman Sachs has released multiple reports, further raising oil price forecasts and stating that high oil prices may persist for the long term.

Market Continually Raises Risk Premium

Based on two main reasons, Goldman Sachs has adjusted upward its oil price predictions: First, assuming that oil transportation through the Strait of Hormuz remains at only 5% of normal levels for up to six weeks, with a gradual recovery taking one month afterward; second, market awareness of the risks associated with highly concentrated oil production and spare capacity, which could drive structural increases in strategic oil reserves and long-term oil prices.

Goldman Sachs believes that during supply disruptions, the market needs to continually increase risk premiums to counteract preventive demand contraction, thus hedging against shortages in scenarios of prolonged supply interruptions. The firm expects Brent crude oil prices to average $110 per barrel from March to April (previously forecasted at $98 per barrel), representing a 62% increase over the full-year average for 2025.

In Goldman Sachs’s view, high oil prices will persist long-term. The bank has raised its 2026 oil price forecasts, expecting the full-year average Brent crude to be $85 per barrel (up from $77), and West Texas Intermediate (WTI) to be $79 per barrel (up from $72); additionally, the Q4 2026 forecasts for Brent and WTI have been raised to $80 and $75 per barrel, respectively (previously $71 and $67).

Goldman Sachs states that this upward revision is mainly driven by two factors: first, the increased impact on commercial oil inventories; second, risk-adjusted long-term oil prices rising after accounting for effective remaining capacity. The average prices for Brent and WTI in 2027 are expected to remain at $80 and $75 per barrel, respectively.

However, Goldman Sachs also warns in related reports that there are downside risks to oil prices, especially affecting U.S. crude oil. The U.S. could terminate military actions at any time, which would reduce the risk premiums on global crude and refined products. Yet, risks of long-term supply disruptions and diminished production potential still depend on decisions by Iran and tanker parties.

Additionally, although not a baseline assumption, the possibility of the U.S. imposing restrictions on oil exports cannot be ruled out, which would further widen the price gap between Brent and WTI.

Helping China End PPI Decline

In several of the above reports, Goldman Sachs focused on analyzing the potential impact of oil price changes on China and Asian economies.

Goldman states that due to the ongoing blockade of the Strait of Hormuz, its commodities research team has further raised oil price forecasts. Although nearly 50% of China’s oil imports are transported via the Strait of Hormuz, China’s overall dependence on imported energy is much lower. Currently, 60% of China’s total energy consumption comes from coal, which is almost entirely domestically produced. China’s ample oil inventories and fiscal measures that limit domestic fuel price transmission also reduce the sensitivity of China’s economic growth to oil prices.

“Nevertheless, a sharp rise in oil and gas prices will push up China’s inflation levels and help end the year-on-year decline in PPI. We have raised our full-year 2026 CPI and PPI inflation forecasts to 1%, higher than the initial estimates of 0.6% and -0.7%,” Goldman Sachs said in the report.

In terms of exports, emerging economies with low income that lack large-scale oil inventories and are unable to implement substantial fiscal subsidies to shield households and businesses from rising energy costs are most vulnerable to high oil prices. As a result, China’s exports to these regions may slow in the coming quarters.

However, in the medium term, extreme volatility in energy prices caused by Middle East conflicts could prompt oil-importing countries to focus on strengthening energy supply security in the coming years. “China is a leader in key industries such as electric vehicles, batteries, and power generation equipment, and after 2027, China’s export growth could benefit from rising global demand for these products,” Goldman Sachs stated.