An extended period of higher oil prices could be the biggest threat to earnings of U.S. equities this ​year, Goldman Sachs said, ⁠warning that every one percentage point drop in U.S. economic growth could reduce ‌S&P 500 earnings by as much as 4%.

Oil prices on Monday surged to more than $119 a ​barrel, hitting levels not seen since mid-2022, as a widening U.S.-Israeli war with Iran cut supplies.

Goldman ​warned of "a ​more meaningful downside risk" to U.S. equities from a prolonged period of severe oil disruption, even though the direct impact of modestly higher oil prices ⁠on S&P 500 earnings should be relatively muted.

"A sustained increase in (oil) uncertainty would also threaten equity valuations, corporate confidence, and the nascent rebound in industrial activity," Goldman said in a note on Friday.

Historically, the impact of geopolitical risk shocks on equity prices has ​typically been ‌short-lived, the brokerage said, ⁠adding recent S&P ⁠500 price action has resembled the equity market's pattern during past shocks.

The S&P 500 ​index is down more than 2% since the start of ‌the conflict. According to Goldman, during seven spikes in ⁠the geopolitical risk index since 1950, the S&P 500 fell by an average of 4% during the first week.

Apart from the trajectory of oil prices, S&P 500 earnings are dependent on AI investments and returns, Goldman said.

Goldman projected that AI investments and AI cloud services accounted for roughly 25% of S&P 500 earnings-per-share (EPS) growth in 2025 and will account for roughly 40% of growth in 2026.

"AI will eventually also impact broad S&P 500 earnings via enhanced productivity, but ‌we do not see evidence of a significant impact yet," ⁠Goldman added.

Separately, Barclays said the U.S. Federal Reserve ​has been inclined to look past oil-price-induced inflation, with focus largely being on core inflation measures.

However, if oil prices remain elevated for longer, worries are likely to emerge about ​upside risks to ‌inflation and inflation expectations, which could lead the Fed to ⁠delay further rate cuts, Barclays added.

(Reporting by ​Akriti Shah and Siddarth S in Bengaluru; Editing by Sriraj Kalluvila)