Wall Street Collectively Pessimistic About 2026, Could an Oil Crisis Trigger an Economic Recession?
- Core View: Multiple top-tier institutions have recently unanimously raised the probability of a U.S. economic recession within the next 12 months to over 30%. The core driver behind this is the oil price shock triggered by the Strait of Hormuz crisis. This rare consensus itself may further exacerbate economic downturn risks by influencing corporate and consumer behavior.
- Key Factors:
- Four institutions (Moody's, Goldman Sachs, J.P. Morgan, EY-Parthenon) recently raised their U.S. recession probability forecasts to 48.6%, 30%, 35%, and 40% respectively, with all prediction paths showing a rapid upward trend.
- The core risk variable is oil prices. Brent crude has risen from around $70/barrel to over $100/barrel due to regional conflicts. The IEA has called this "the biggest disruption to energy supplies since the 1970s."
- Historical data shows that four out of the past five major oil price shocks triggered economic recessions. J.P. Morgan estimates that every sustained 10% increase in oil prices will drag down U.S. GDP by approximately 15-20 basis points.
- BlackRock CEO Larry Fink proposed an extreme scenario framework: either oil prices fall back to $40, bringing growth, or they remain above $100, leading to a global recession and impacting agricultural supply chains.
- Recent economic data has weakened, such as consumer confidence indices at historical lows and an unexpected decline in February non-farm payrolls, resonating with the institutions' pessimistic forecasts.
- While the methodologies of the various institutions differ, their conclusions are converging. This consensus may become self-fulfilling, prompting businesses and consumers to cut spending, thereby further worsening the economic outlook.
During the week of March 25th, four institutions—Moody's Analytics, Goldman Sachs, J.P. Morgan, and EY-Parthenon—using different methodologies, all raised their forecasts for the probability of a US recession within the next 12 months to over 30%. Moody's gave 48.6%, EY-Parthenon 40%, J.P. Morgan 35%, and Goldman Sachs 30%.
This fact itself is more significant than any specific number.
Four Lines Rising Simultaneously
Moody's Analytics' machine learning model produced the highest reading. According to a Fortune report on March 25th, Moody's Chief Economist Mark Zandi stated that this figure was only 15% in December 2024, rose to 42% by the end of 2025, jumped to 49% in February of this year, with the latest calculation settling at 48.6%. Zandi expects the next round of data will likely push this number past 50%. The baseline recession probability typically ranges between 15% and 20%, making the current reading nearly three times the normal level.
Goldman Sachs' trajectory is similarly steep. According to the Fortune report, Goldman's forecast in December 2024 was 15%, adjusted slightly to 20% in January this year, raised to 25% on March 12th, and reached 30% by March 25th. This pace of doubling the probability within two weeks is rare in Goldman's historical forecasts. Goldman also raised its PCE inflation forecast by 0.2 percentage points to 3.1%, lowered its full-year GDP growth forecast to 2.1%, and pushed back its expectation for the first rate cut from June to September.
J.P. Morgan Global Research gave a 35% probability. According to a CNBC report on March 19th, J.P. Morgan economists simultaneously lowered their year-end target for the S&P 500 from 7500 points to 7200 points, with a potential drop to 6000 points under extreme scenarios.
EY-Parthenon was the last of the four to comment, but its 40% probability came with an interesting qualifier. According to a World Oil report on March 24th, EY-Parthenon Chief Economist Gregory Daco defined the current situation as a "multidimensional disruption," citing impacts not limited to crude oil supply but also affecting refining systems, LNG infrastructure, and fertilizer supply chains. This means that even if oil prices fall, inflationary pressures will not subside simultaneously.
The Historical Win Rate of Oil Price Shocks
The core assumptions of the four institutions share a common variable: oil prices. Since the US-Israel strikes on Iran on February 28th, Brent crude has climbed from around $70 per barrel, breaking through $100 on March 8th (the first time in four years), and briefly touching $115 last week. It closed at $102.22 on March 25th.
According to the IEA's March report, the Strait of Hormuz previously handled approximately 20 million barrels of crude oil per day, accounting for about 20% of global seaborne oil trade. Following the outbreak of conflict, Gulf countries have cut crude oil production by at least 10 million barrels per day. Zandi estimated in an interview with Fortune that about one-third of the global fertilizer supply also passes through this waterway.
Energy shocks of this magnitude have occurred four times in history.
According to J.P. Morgan research, four out of the five major oil price shocks since the 1970s triggered recessions afterwards. The 1973 Yom Kippur War caused oil prices to surge 300%, and the US entered a recession that November. The 1979 Iranian Revolution doubled oil prices, and a recession began in January 1980. The 1990 Gulf War pushed oil prices up 180%, and a recession started almost simultaneously. The supercycle from 2002 to 2008 saw a cumulative 592% increase in oil prices, culminating in the global financial crisis.
The current 2026 Strait of Hormuz crisis has seen a price increase of about 80%, the smallest among the five. However, there is a key difference: the scale of the supply disruption this time is larger than any previous one. The IEA describes it as "the largest disruption to energy supplies since the 1970s energy crisis."
J.P. Morgan economists provided a quantitative estimate: every sustained 10% increase in oil prices drags US GDP down by approximately 15 to 20 basis points.
Fink's Dichotomy
On March 25th, BlackRock CEO Larry Fink, who oversees over $10 trillion in assets, offered a more direct framework than numbers in an interview with the BBC.
According to the Fortune report, Fink said: "There is no middle ground; the outcome will be one of two extremes."
The first scenario: Iran is accepted by the international community, re-engages in global trade, oil supply recovers, prices fall to $40 per barrel, and the world welcomes growth. The second scenario: the conflict persists, the Strait blockade continues for years, oil prices remain above $100 or even approach $150, and the world enters a recession. Fink specifically noted that the ripple effects of high oil prices would transmit to agricultural products and fertilizers, as both are byproducts of natural gas.
However, Fink also ruled out one possibility, clearly stating that a systemic financial crisis like 2008 would not occur, as the capital adequacy of financial institutions today is far higher than back then.
Consensus Itself is a Variable
Returning to the opening question. Moody's uses a machine learning model, Goldman Sachs uses a macroeconomic forecasting framework, J.P. Morgan tracks a five-factor indicator, and EY-Parthenon approaches from a supply chain dimension. Four different methodologies converged in the same direction within the same week.
According to the University of Michigan's March survey, the Consumer Sentiment Index fell to 55.5, placing it at the 2nd historical percentile. According to BLS data, US non-farm payrolls in February decreased by 92,000, the opposite of the market's expectation for a 60,000 increase. Leisure and hospitality lost 27,000 jobs, healthcare lost 28,000, manufacturing lost 12,000, and the federal government lost 10,000. According to BLS statistics, since the peak in October 2024, federal government employment has shrunk by a cumulative 330,000, an 11% decline.
Zandi said in the interview that if oil prices average around $125 per barrel in the second quarter, "that would push us into a recession." With Brent currently around $102, that line is $23 away.
The forecasts from these four institutions may not be accurate. But when four institutions arrive at similar conclusions using different methods in the same week, its impact is more than just a probability number. Businesses may delay investment plans because of it, consumers may tighten spending, and these behaviors themselves can, in turn, depress economic data, causing the numbers in the next round of forecasts to rise further.
