Michelle ThompsonFood prices will rise if the Israel-Hamas conflict spread throughout the Middle East, disrupting oil supplies, according to Bank
The World Bank has warned that if the fight between Israel and Hamas results in a resurgence of the full-scale conflict in the Middle East that was witnessed half a century ago, oil prices might surge to a record high of more than $150 per barrel.
The World Bank stated that there was a chance that the price of crude will reach “uncharted waters” in the first comprehensive analysis of the financial risks of the conflict spreading beyond Gaza’s borders.
A “big disruption” scenario similar to the 1973 Arab oil embargo on Western oil supplies would result in shortages and drive up the price of an oil barrel from roughly $90 to between $140 and 157. The previous high, not accounting for inflation, was set in 2008 at $147 per barrel.
According to Indermit Gill, chief economist at the World Bank, “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.” That has long-lasting disruptive impacts on the world economy.
“Policymakers must exercise caution. The global economy would experience a dual energy shock for the first time in decades, not just from the war in Ukraine but also from the Middle East, if the conflict were to worsen.
According to the Bank’s most recent commodities markets forecast, the shock to the world economy would cause hundreds of millions of people to go hungry due to rising food prices in addition to energy expenses.
According to the Bank’s judgment, the Israel-Hamas conflict hasn’t had much of an effect on commodity prices thus far. While industrial metals, agricultural commodities, and other commodities had “barely budged,” oil prices had increased by almost 6%.
“If the conflict were to escalate,” it continued, “the outlook for commodity prices would darken quickly.”
As the world economy slows, oil prices are expected to average $90 per barrel this quarter and $81 per barrel the next year, according to the World Bank’s baseline prediction. However, it also outlined three potential directions for oil prices:
- A “small disruption” scenario would result in a daily drop in the world’s oil supply of between 500,000 and 2 million barrels, or roughly equal to what was experienced in 2011 during the Libyan civil war. The price of a barrel of oil would increase to between $93 and $102.
- a “medium disruption” scenario in which the world’s oil supply would be cut by 3 million to 5 million barrels per day, roughly comparable to the 2003 Iraq War. At first, oil prices would increase by 21% to 35%, reaching a range of $109 to $121 per barrel.
- A “big disruption” scenario—like the actions performed during the Yom Kippur War in 1973—would cause the world’s oil supply to decrease by 6 million to 8 million barrels per day, raising prices by 56% to 75% to $140 to $157 per barrel.
The 1973 oil embargo caused the price of crude oil to suddenly climb fourfold, resulting in increased inflation and unemployment that ultimately ended the protracted postwar boom in the world economy.
“If sustained, higher oil prices will inevitably translate into higher food prices,” stated Ayhan Kose, deputy chief economist at the World Bank. “Food price inflation, which is currently high in many developing nations, would increase if a significant oil price shock materialized. Over 700 million people, or almost a tenth of the world’s population, were undernourished by the end of 2022. Food insecurity would get worse worldwide as well as in the region if the current war gets worse.
