Goldman Sachs is warning that heightened attacks in the Persian Gulf and Red Sea could push global oil prices above $120 a barrel, which would add to the surging fuel costs Americans have faced during the Iran war.

The investment bank’s forecast implies a roughly 20% increase in the cost of Brent crude, the international benchmark, which is trading at nearly $100 a barrel. Oil prices have spiked in recent weeks as the Middle East conflict drags on, with U.S. military forces striking three Iranian oil tankers on Saturday and the Houthi rebels attacking Saudi oil facilities.

On Tuesday, the price of Brent briefly climbed to $99.46 a barrel before dipping to $97.85. Over the past two months, Brent has climbed from roughly $72 a barrel as increased fighting in the Middle East erodes hopes of a deal to reopen the Strait of Hormuz, a strategic waterway that normally carries a fifth of the world’s oil flows. 

$100 billion hit

American consumers spent an additional $100 billion on fuel between the start of the Iran war on Feb. 28 and Sept. 8, according to a tracker from Brown University. Higher gasoline prices accounted for about $55 billion of that amount, while diesel accounted for the remaining $45 billion. 

Diesel, which is widely used in the trucking, construction, agriculture and rail sectors, reached a record $5.90 a gallon on Labor Day, AAA data shows.

The increase is squeezing household budgets directly at the pump and indirectly by raising transportation costs for groceries and other retail goods. Inflation remains elevated, with economists forecasting that the next Consumer Price Index report, set to be released on Friday, will show inflation in August rose by 3.3% on an annual basis — well above the Federal Reserve’s annual 2% target.

“This is the time of year that most Americans see gas prices going down as demand falls and we soon change to winter gasoline, but as of late, we’ve been seeing a lot more ups — especially for diesel — the fuel that drives the U.S. economy, and that may continue,” GasBuddy petroleum analyst Patrick De Haan said in a Sept. 7 social media post.

On Thursday, the U.S. government will also release its August report for wholesale inflation, the Producer Price Index, which economists expect will show an acceleration to 5.4% from 4.7% in July.

Goldman’s base case

Goldman’s forecast is based on an increase in hostilities in the Middle East. The bank’s base case calls for Brent to drop to $85 a barrel by year’s end, with West Texas Intermediate, the U.S. benchmark, settling at about $80 a barrel. Those estimates represent an increase of $5 per barrel from the investment firm’s previous forecast. 

“The price upgrade is modest despite the assumption that shipping disruptions continue for two reasons,” which are that commercial fuel inventories in developed countries have barely declined, and that oil shipments from the Middle East should slowly recover, Goldman analysts wrote in the Sept. 7 research report. 

The Trump administration expects oil prices to drop below their pre-war levels when the conflict ends. Treasury Secretary Scott Bessent told Fox News on Sunday that the energy supply shock “is going to end.”

“On the other side of this, we actually could see oil prices at $40 or $50 [a barrel] because there’s so much supply coming on,” Bessent said. 

Goldman said that its best-case scenario places Brent in the $60-per-barrel range in 2027, but only if oil production in the Persian Gulf increases by 1 million barrels a day above its pre-war levels. The analysts added that they see a higher likelihood that oil prices will rise rather than fall, adding, “Risks to our price forecast remain significantly tilted to the upside on net, especially near-term.”

Markets are increasingly bracing for a prolonged conflict, Goldman said. Options now imply a 25% probability that Brent will remain above $100 in March 2027, up from a 6% probability a month ago, they added.