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Potential Impact of Escalating Middle East Conflict on Oil Prices, World Bank Warns
The World Bank warns that if the conflict in the Middle East escalates, oil prices could rise to over $150 a barrel and potentially result in a "dual energy shock" affecting oil and gas supplies. However, current predictions suggest wholesale prices will fall to $81 a barrel if the crisis does not worsen. The Bank is cautious due to the potential for higher energy prices leading to inflation and increased food prices. They are concerned that an intensification of the conflict would exacerbate food insecurity globally.
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Originally published by www.nationnews.com (opens in new tab)
Oil prices could rise to more than $150 a barrel if the conflict in the Middle East escalates, according to the World Bank.
A drawn-out war in the region could drive big rises in energy and food prices, just a year after prices spiked due to the Russian invasion of Ukraine.
For now oil prices remain steady at around $90 a barrel and are predicted to fall.
However, the Bank warns that this outlook could quickly reverse.
Under its worst case scenario, the World Bank said a situation could develop that was comparable with the oil crisis of the 1970s, which would could push oil prices up to between $140 and $157 a barrel.
In October 1973, Arab oil producing nations cut exports to the US and other countries that supported Israel in the Yom Kippur war. It sent prices sky high.
“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 Indermit Gill, chief economist at the World Bank. “That had disruptive effects on the global economy that persist to this day.”
He added that policymakers would need to be vigilant, as the scenario of a “dual energy shock”, affecting supplies of both oil and gas, had not occurred for decades.
European gas prices jumped higher this month, as investors feared pipeline disruptions near the Gaza strip would hit global supplies.
However, oil markets have mostly shrugged off the impact of the conflict so far.
Benchmark Brent prices fell more than 1 per cent to around $89 per barrel on Monday.
If the crisis in the Middle East does not escalate, current predictions are for wholesale prices to fall to $81 a barrel.
The World Bank said the global economy was in a better position to withstand a supply shock than it had been during previous conflicts in the Middle East.
But the Bank was cautious, saying the global economy was still recovering from the energy price spikes seen last year.
Higher energy prices can lead to high inflation, as happened following Russia’s invasion Ukraine, with a knock-on affect on other commodities.
“Higher oil prices, if sustained, inevitably mean higher food prices,” said Ayhan Kose, deputy chief economist at the World Bank.
He added: “If a severe oil-price shock materialises, it would push up food price inflation that has already been elevated in many developing countries. At the end of 2022, more than 700 million people – nearly a tenth of the global population – were undernourished.”
