The World Bank warned that oil prices could rise above $150 a barrel if the conflict between Israel and Hamas escalates into a crisis across the Middle East.
It says the global economy, already struggling with the fallout from the Ukraine war, could face “a double energy shock for the first time in decades.”
“An escalation in the recent conflict in the Middle East … could push global commodity markets into uncharted waters,” the World Bank report said.
It was the first comprehensive assessment of the possible economic impact of the war, much of which would be reflected in an increase in oil prices.
That could have ripple effects on fuel and food prices and cause further problems, particularly for the world’s poorest, who are reeling after Vladimir Putin’s attack on Ukraine reduced grain exports from a key food-producing region.
Oil threat: The World Bank said the global economy, already struggling with the Ukraine war, could face “a double energy shock for the first time in decades”
The report said that in the worst-case scenario of a “major disruption” on the scale of the Arab embargo on the sale of oil to the West in 1973, global supplies could shrink by 6 million to 8 million barrels per day.
That would push prices up 56 to 75 percent to $140 to $157 a barrel, the World Bank said.
A “moderate disruption” – comparable to the 2003 Iraq war – could reduce production by 3 million to 5 million barrels per day and send prices up to $109 to $121.
And a “small disruption” in supplies of 500,000 to 2 million barrels per day could push prices to $93 to $102. So far, the impact has been “limited,” the report says.
After the Hamas attack on Israel, oil prices rose to almost $94 a barrel, but fell to around $87 yesterday.
However, the report said: “The outlook for commodity prices would quickly deteriorate if the conflict were to escalate.”
World Bank chief economist Indermit Gill said: “The latest conflict follows the biggest shock to the commodity market since the 1970s – Russia’s war with Ukraine.”
Policymakers must be vigilant.
“If the conflict were to escalate, the global economy would experience a double energy shock for the first time in decades – not just from the war in Ukraine, but also from the Middle East.”
International Monetary Fund chief economist Pierre-Olivier Gourinchas said if the war led to a 10 percent rise in oil prices, it could shave 0.15 percent off GDP growth next year and 0.4 percent off global inflation Increase percentage points.