The high oil prices are not abating, with the probability of a recession increasing on Wall Street: Ernst & Young sees it at 40%, while Goldman Sachs has revised it to 30%.

Wall Street analysts have stated that the risk of a recession in the United States is rising as oil prices continue to fluctuate at high levels due to the ongoing conflicts in the Middle East. Gregory Daco, Chief Economist at EY-Parthenon, said in a report earlier this week, "Downside risks have significantly increased." Daco said, "In this context, we currently estimate the probability of a recession to be 40%, but emphasize that if the Middle East conflict continues for a longer period or escalates further, this probability could quickly rise." The economist pointed out that the disruption in the Strait of Hormuz and the increased risk of damaged oil production indicate that the inflation environment will not only be a temporary surge in energy prices, but more sustainable. If the conflict escalates, oil prices surpass $100 per barrel, other key commodity prices rise, financial conditions tighten, "US inflation rate could rise to around 5%, and real GDP growth could be lowered by over 1 percentage point, significantly increasing the risk of a recession." The latest Consumer Price Index shows an annualized inflation rate of 2.4%, while the "core" inflation rate, which excludes the volatile energy and food categories, rose by 2.5% year-on-year. On Wednesday, oil prices fell by more than 3%, as the market continued to monitor developments surrounding the Iran situation. US President Trump hinted that the US is in talks with Iran. WTI crude oil fell to around $88 per barrel, while Brent crude fell below $96. Since the conflict between the US and Iran erupted, oil prices have risen by about 25%. Daco also pointed out vulnerabilities in the artificial intelligence-driven investments and private credit sectors, as "liquidity pressures may evolve into challenges to debt repayment." Earlier this week, economists at Goldman Sachs also raised the probability of a US economic recession in the next 12 months from 25% last week to 30%, citing the rise in oil prices and their impact on the global economy. Jan Hatzius, Chief Economist at Goldman Sachs, said the increase in oil and gas prices will push global inflation up by about 1 percentage point overall and reduce global GDP growth by 0.4 percentage points. Hatzius wrote, "Although the impact of energy on US economic growth may be relatively small, it comes at a time when financial conditions are tightening and the effects of fiscal stimulus in the second half of the year are diminishing. Therefore, we currently expect economic growth to be below trend, the unemployment rate to rise, and we have slightly raised the probability of a recession in the next 12 months to 30%." He expects the Federal Reserve to cut interest rates in September and December, but delays the expected rate cut by the Bank of England until 2027, while predicting that the European Central Bank will raise rates in April and June. Meanwhile, on the Polymarket prediction platform, traders have increased their bets on the probability of the US falling into a recession by the end of 2026, from 23% on February 27 (before the Iran war) to 35% on Wednesday.