(Bloomberg) -- Investors are becoming too complacent about the risks to the oil price from Russia’s invasion of Ukraine and overly optimistic about the war’s ability to slow down monetary tightening, according to strategists at Goldman Sachs Group Inc.

“The market may be underestimating the risks of tighter supply on oil pricing, which remains a key risk from the ongoing conflict -- so we think the ‘risk premium’ here should probably be larger,” Goldman Sachs strategists led by Dominic Wilson said in a note on Monday. “The market is starting to overestimate the impact that the conflict will have on the Fed trajectory” and strategists expect front-end rates to likely reverse the recent rally.

Oil has surged above $105 a barrel as the Russian invasion of Ukraine continued to raise the specter of major global supply disruption. While the U.S. and Europe have so far stopped short of imposing sanctions directly on Russian commodities, the trade in those raw materials is seizing up as banks pull financing and shipping costs surge. Russia is the world’s third-biggest oil producer. 

The attack on Ukraine has upended commodity markets from oil to natural gas and wheat, raising inflationary pressures and spooking equity investors. Global stocks have posted two months of declines this year on concerns over more aggressive monetary tightening and slowing growth recovery, with the economic implications of sanctions against Russia adding to the list of woes. 

READ: Russian Markets Are Becoming Uninvestable as Sanctions Bite

“Even if we do see an eventual reduction in tensions, long-lasting shifts in policy and economic outcomes are now likely, and not just in local assets,” Wilson wrote in the note, warning of persistently higher commodity supply risks, changing growth and inflation outcomes, rising defense spending in Europe and an extended period of sanctions on Russian assets.

READ: Traders Abandon Bets on a Half-Point Fed Rate Hike in March

The risk to economic growth is higher in the euro area than in the U.S. in the near term, Goldman strategists said, which modestly increases the chances of the European Central Bank slowing down the pace of its monetary tightening. As for the U.S. Federal Reserve, the strategists expect the impact to be more neutral, even as traders are casting aside wagers on a supersized Federal Reserve interest-rate hike in March. 

Goldman Sachs economists over the weekend lifted their U.S. inflation forecast and now see the Fed lifting rates more than expected in 2023.

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