Oil prices could surge over 50% to well above $150 per barrel if the latest tensions in the Middle East spiral into a wider conflict and cause significant disruptions to global oil supplies, the World Bank warned Tuesday.
In a new report, the World Bank said expanded conflict in the Middle East could choke off oil supply by up to 8 million barrels per day. This would drive prices for benchmark Brent crude from around $95 currently to between $140-$157 per barrel, more than double today’s prices.
“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 had disruptive effects on the global economy that persist to this day,” said Indermit Gill, the World Bank’s chief economist.
The report highlights that even a more moderate oil supply impact of 3-5 million barrels per day reduction – similar to the 2003 Iraq war’s effect – could push crude prices up 21-35% in the near-term, taking Brent from around $95 now to $109-$121 per barrel.
“Higher oil prices, if sustained, inevitably mean higher food prices. An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world,” warned Ayhan Kose, the World Bank’s deputy chief economist.
With the loss of Russia’s key oil exports due to the Ukraine war, an additional supply crunch from the volatile Middle East could tip commodity markets into chaos, the World Bank said. This could unleash a “dual energy shock” that would reverberate across the global economy.
The bank highlighted that the world economy is less vulnerable currently to oil supply shocks than in the 1970s, due to more diversified energy sources, strategic reserves, and reduced oil intensity. But it stressed that policymakers need to remain vigilant and be ready to deploy additional monetary and fiscal measures to curb inflationary impacts.
Developing countries also need to boost social safety nets, avoid price controls that often backfire, and ensure efficient food production and trading systems, the World Bank advised. Food price surges driven by higher oil costs would disproportionately impact poorer nations.
“Policymakers in developing countries will need to take steps to manage a potential increase in headline inflation,” the report warned. “Given the risk of greater food insecurity, governments should avoid trade restrictions such as export bans on food and fertilizer.”
While the Mideast tensions have not caused major price moves yet, the World Bank pointed to rising gold prices as a warning sign that investors are growing more concerned about geopolitical instability. Accelerating the shift towards renewable energy sources globally can mitigate oil supply disruption risks over the long term, the bank added.
