Goldman Sachs: This round of energy shock is different from 2022, with a smaller drag on European manufacturing but a broader impact

Overview

The report analyzes the impact of rising oil and gas prices on European manufacturing after global energy supplies were disrupted by conflict in the Middle East and the near closure of the Strait of Hormuz. Goldman Sachs believes this shock differs from the 2022/23 European energy crisis in three key ways: the price shock is smaller and shorter-lived, it is more oil-focused rather than gas-focused, and its impact is more global rather than Europe-specific. Therefore, the overall drag on European manufacturing should be significantly smaller than in 2022, but the impact will be more dispersed and may not be concentrated only in energy-intensive industries.

Core views

The core view is that Euro Area industrial production may be about 1.5%-2% below the pre-conflict baseline by end-2027, compared with an estimated drag of about 4% during the 2022/23 energy crisis. The 2022/23 crisis was mainly caused by a sharp drop in Russian pipeline gas supply and delivered a concentrated hit to gas-intensive industries; this round is more like a global oil supply shock and may pressure a broader range of manufacturing through global demand, exports, and capital-goods channels. Europe’s energy-intensive industries are expected to suffer less competitiveness damage relative to China than in 2022, because current price pressure in Europe and Asia is more similar.

Analysis framework

The report combines energy price forecasts, OECD intercountry input-output tables, Euro Area sector-level industrial production panel data, and lessons from the 2022/23 crisis to compare how different energy types, sector energy intensity, and regional price differentials transmit to manufacturing. The focus is not on individual companies, but on output, costs, competitiveness, and import-export effects at the European manufacturing industry level.

Methodology notes

• input_output_analysisOECD Intercountry Input-Output / Leontief inverse

  Direct and indirect energy intensity

  The report uses OECD intercountry input-output tables to calculate direct energy inputs by sector and indirect energy inputs through the Leontief inverse matrix, and measures sector energy intensity as the share of energy inputs in total output.

• econometric_modeldynamic panel model

  Dynamic impact of energy price shocks on industrial production

  The report uses the dynamic panel model previously applied to assess the 2022/23 energy crisis, and under Goldman Sachs commodities team forecasts for oil and gas prices and unchanged financial conditions, estimates the drag of this shock on Euro Area industrial production relative to the pre-conflict baseline.

• sector_comparisonsector-level industrial production panel

  Sector differences between gas shocks and oil shocks

  The report compares sector-level industrial production data across major Euro Area economies and finds that supply-driven gas price shocks more heavily hurt energy-intensive sectors such as basic metals and chemicals, while oil price shocks have a broader impact on manufacturing and significantly drag on capital-goods sectors such as motor vehicles, machinery and equipment, computer and electronics, and electrical equipment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent crude oil

  The main price transmission variable in this energy shock

  Strengths

  Highly liquid and globally priced, allowing it to quickly reflect supply risks related to the Middle East and the Strait of Hormuz.

  Weaknesses

  Oil price shocks are transmitted broadly through global demand and trade chains, making them difficult to map to a single European industry.

  Comparison

  Compared with the 2022/23 shock centered on natural gas, this round is more of an oil supply shock.

  Risks

  If conflict in the Middle East escalates or the Strait of Hormuz remains blocked, oil prices may rise above the baseline forecast.

• European TTF natural gas

  An important but relatively secondary variable for cost pressure on European manufacturing

  Strengths

  It still directly affects costs in energy-intensive industries such as chemicals, basic metals, and non-metallic minerals.

  Weaknesses

  This round’s gas supply shock is expected to be smaller than in 2022/23, and future LNG supply growth may buffer the pressure.

  Comparison

  The 2022/23 European crisis was mainly driven by reduced Russian pipeline gas, with a larger and more persistent TTF price shock.

  Risks

  If LNG supply recovery falls short of expectations or Europe must absorb more demand adjustment, TTF prices could again amplify the drag on manufacturing.

• European energy-intensive manufacturing

  Cost-sensitive, but relative competitiveness pressure is lower this round than in 2022

  Strengths

  Global price shocks are more synchronized, and Europe’s cost disadvantage relative to China is less pronounced than in 2022.

  Weaknesses

  With a high share of energy inputs, it still faces direct and indirect pressure from rising oil and gas prices.

  Comparison

  Output fell by about 15% in 2022/23; this round is expected to be smaller and involve fewer capacity closures.

  Risks

  If the price shock becomes more persistent, sectors such as chemicals and basic metals may still face profitability and capacity risks.

• European capital goods and export-oriented sectors

  The relatively more noteworthy pressured segment under this oil shock

  Strengths

  They have lower energy intensity and benefited relatively from import substitution and cost buffers in the previous gas crisis.

  Weaknesses

  Oil supply shocks more easily suppress global demand and weigh on sectors such as autos, machinery and equipment, computer and electronics, and electrical equipment.

  Comparison

  Compared with the concentrated damage to gas-intensive industries in 2022/23, the pressure this round may be more dispersed.

  Risks

  If global demand is revised down or export orders weaken, non-energy-intensive industries may perform worse than in the previous crisis.

Key data

• 2026 average Brent crude price forecast$83/bblRevised-up forecast from Goldman Sachs commodities analysts; the pre-conflict forecast was $64/bbl.
• 2026 average European TTF natural gas price forecastEUR44/MWhRevised-up forecast from Goldman Sachs commodities analysts; the pre-conflict forecast was EUR34/MWh.
• Expected drag on Euro Area industrial productionAbout 1.5%-2% by end-2027Relative to the pre-conflict baseline; the model discussion in the text says close to 2%, while the chart title shows a 1.5% decline in 2027Q4.
• Industrial production drag in the 2022/23 energy crisisAbout 4%Used as the comparison benchmark for this shock.
• Decline in output of energy-intensive industries from 2022 to 2024About 15%The report notes that energy-intensive industries were clearly hit during the previous European energy crisis.
• Increase in average Brent price in 2022About 40%Relative to the 2021 average price.
• Increase in average European natural gas price in 2022About 180%Relative to the 2021 average price, significantly above the expected 20%-30% increase from 2025 to 2026 in this round.
• Scale of Persian Gulf export disruptionAbout 12% of global oil supplyThe report cites Goldman Sachs commodities team estimates of the current shock.
• Share of global LNG passing through the Strait of HormuzAbout 20%But LNG accounts for only about 15% of global gas supply and about 45% of EU gas supply, so the shock to EU gas supply is smaller than in 2022/23.
• Share of industrial gas use accounted for by four gas-intensive industriesAbout 70%The industrial-sector adjustment in 2022/23 was mainly driven by these gas-intensive industries.

Impact & implications

From an investment perspective, this shock should not be viewed simply through the 2022 framework that 'Europe’s energy-intensive industries are the most harmed.' High-energy-consuming sectors still face cost pressure, but because the shock is more global and Europe’s relative competitiveness disadvantage is smaller, their relative performance may be better than in 2022/23; by contrast, capital goods, autos, machinery and equipment, electronics, electrical equipment, and export-oriented manufacturing may bear broader pressure due to the oil shock and weaker global demand. At the macro level, Euro Area industrial production may weaken in the near term and only return to positive growth in 2027.

Risks

• Further escalation of the Middle East conflict or a longer-than-expected closure of the Strait of Hormuz could lead to a larger and more persistent energy price shock.
• The model assumes unchanged financial conditions; if financial conditions tighten, the drag on industrial production could be amplified.
• If Goldman Sachs’ commodities price path underestimates oil and gas increases, the negative estimate for manufacturing may be too low.
• If LNG supply growth falls short of expectations, Europe’s gas shock could be closer to the 2022/23 scenario than the report’s baseline.
• If global demand weakens materially because of the oil price shock, export-oriented and capital-goods sectors could face additional pressure.

What to watch

• Whether Brent crude remains above Goldman Sachs’ 2026 average price forecast path of $83/bbl.
• Whether European TTF gas prices remain stable around the forecast EUR44/MWh level, or whether spikes similar to those in 2022 reappear.
• Transit through the Strait of Hormuz and the recovery of energy exports from the Persian Gulf.
• Relative changes in producer prices for basic chemicals and petrochemical products in China and Europe.
• Euro Area industrial production data, especially for chemicals, basic metals, autos, machinery and equipment, computer and electronics, and electrical equipment.
• Signals of capacity closures, production cuts, and import competition in Europe’s energy-intensive industries.
• Whether LNG supply growth in 2026-2027 can buffer pressure in the European natural gas market.