NextFin News - Crude oil prices surged past $119 a barrel on Monday, marking their highest level since mid-2022, as the escalating U.S.-Israeli military campaign against Iran threatens to paralyze the world’s most vital energy artery. The closure of the Strait of Hormuz, through which approximately 20% of global oil supplies transit, has transformed a regional skirmish into a systemic shock for global equity markets. Goldman Sachs issued a stark warning on Friday, identifying sustained energy disruption as the primary threat to S&P 500 earnings growth for 2026, a year that was previously expected to be defined by a robust artificial intelligence-driven expansion.
The conflict, which ignited on February 28, 2026, with joint U.S.-Israeli airstrikes on Iranian infrastructure, has rapidly deteriorated into a broader confrontation involving missile exchanges across the Persian Gulf. While the S&P 500 initially followed a historical pattern of a 4% dip followed by a quick recovery, the persistence of triple-digit oil prices is forcing a reassessment of corporate profitability. Goldman Sachs strategists, led by Ben Snider, have quantified the risk with surgical precision: every one percentage point decline in U.S. GDP growth could slash S&P 500 earnings by 4%. With a sustained $10-per-barrel increase in oil estimated to shave 10 basis points off GDP, the cumulative effect of a $40 spike threatens to derail the bank’s baseline forecast of 12% earnings growth for the year.
Market participants are now navigating a bifurcated landscape where the "AI tailwind" is meeting the "oil headwind." Before the strikes, Goldman Sachs projected that AI-related investments and cloud services would account for 40% of all S&P 500 earnings-per-share growth in 2026. This concentration of growth in the technology sector provided a buffer against broader economic malaise, but that shield is thinning. High energy costs act as a regressive tax on consumer spending and a direct margin squeeze for industrial and transport sectors, potentially cooling the very corporate confidence required to sustain the $540 billion in AI capital expenditure Goldman expects this year.
The Federal Reserve’s position has become similarly precarious. U.S. President Trump’s administration inherited an economy where the FOMC was weighing rate cuts to support a "soft landing," holding the federal funds rate at 3.50% to 3.75% in January. However, the oil shock has scrambled those calculations. Barclays notes that while the Fed typically "looks through" energy-driven inflation, a sustained move toward $120 oil could push headline CPI toward 3% by late 2026. This has already prompted traders to trim bets on a second rate cut this year, with the consensus for the first move shifting from July to September.
Goldman CEO David Solomon expressed surprise at the market’s "benign" initial reaction, but that composure is fraying as the four-week disruption window originally priced in by traders is surpassed. The risk is no longer just the price of a barrel, but the second-order effects on equity valuations and the nascent rebound in industrial activity. If the Strait of Hormuz remains a no-go zone for shipping, the "fundamental base" of 12% earnings growth and a 7,600 year-end target for the S&P 500 will likely require a significant downward revision. The resilience of the 2026 bull market now rests less on the silicon chips of Silicon Valley and more on the geopolitical stability of the Persian Gulf.
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