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The World Bank warned on Monday that crude oil prices could rise to more than $150 a barrel if conflict escalates in the Middle East, which could lead to a repeat of the oil price shock of the 1970s if major producers cut supplies.
In its quarterly report Commodity market forecastsThe multilateral bank said the long conflict between Israel and Hamas could lead to significant rises in energy and food prices in a “double shock” to commodity markets still reeling from Russia’s large-scale invasion of Ukraine.
“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s – Russia’s war with Ukraine,” said Indermeet Gill, World Bank Chief Economist and Senior Vice President for Development Economics.
Under the bank’s baseline forecast, commodity prices are expected to fall by 4.1 percent next year, with oil prices falling to an average of $81 per barrel, down from the $90 per barrel expected in the current quarter, as economic growth slows.
However, the report said that these expectations could quickly reverse if the conflict intensifies in the Middle East. In a worst-case scenario, global oil supplies could shrink by 6 million to 8 million barrels per day, sending prices to between $140 and $157 per barrel, if major Arab producers such as Saudi Arabia move to reduce exports.
The report added that under small and medium disruption scenarios, prices could reach $102 to $121 per barrel. The current global demand for oil is about 102 million barrels per day.
The war began when Hamas launched cross-border attacks from Gaza on October 7, killing more than 1,400 people and taking more than 230 hostage, according to Israeli officials. The Israeli bombing killed more than 8,000 people in Gaza and injured more than 20,000 others, according to Palestinian officials.
The conflict threatens to spread beyond Israel and the occupied Palestinian territories, with energy analysts warning that global exports could be harmed if major crude oil producers such as Iran actively participate.
European gas prices jumped this month to their highest levels since March as traders feared pipeline disruptions would affect global supplies, but oil markets largely ignored the impact of the conflict.
Benchmark Brent crude prices fell more than 3 percent to about $87 a barrel on Monday, after exceeding $89 after the outbreak of the latest conflict. Crude oil prices reached a record high of $147 per barrel in 2008 on the eve of the global financial crisis.
The World Bank said the global economy is better positioned to withstand a supply shock than it was in October 1973, when Arab members of OPEC reduced exports to the United States and other countries that supported Israel in the Yom Kippur War, causing crude oil prices to quadruple. .
The Middle East is less important for global oil exports than it was 50 years ago About 30 percent of supply, down from 37 percent in the 1970s.
But Ayhan Kosi, deputy chief economist at the World Bank, warned that 30 percent was still too much. When you think about oil prices, what happens in the Middle East doesn’t stay in the Middle East. “It has huge global implications.”
But the report warned that there has yet to be a full recovery from Russia’s invasion of Ukraine in February 2022, which Kosi described as “shocking to commodity markets.”
He told the Financial Times that a “really negative outcome” would come if escalation of the conflict led to a sustained increase in commodity prices, which would unleash “another wave of inflation” and force central bankers to act. “Policymakers need to be vigilant,” Gill added.
This will have serious consequences for food security in poor countries that already face increasing levels of hunger, according to the bank. Increases in oil and gas prices would also lead to higher shipping and fertilizer costs, making agricultural commodities more expensive.
“High oil prices, if they continue, will inevitably mean higher food prices,” Kosi said, adding that at the end of 2022, nearly a tenth of the world’s population is undernourished.
“The recent escalation of conflict will exacerbate food insecurity, not only within the region but also around the world,” Kos said.
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