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Recently, the World Bank released a report on the relationship between the conflict in the Middle East and oil prices, warning that if the conflict in the Middle East escalates, oil prices could rise sharply, and may even reach more than $150 per barrel. At present, international oil prices are stable at around $90 per barrel, but the World Bank says that stability may soon be broken.
The World Bank notes that in the worst-case scenario, the escalation of the conflict in the Middle East is similar to the oil crisis of the 70s of the 20th century, which could push oil prices to $140 to $157 per barrel. Such an increase in oil prices would have serious repercussions for the global economy.
Indmet Gill, chief economist at the World Bank, said, "The recent conflict in the Middle East follows Russia's war with Ukraine, which has hit commodity markets the hardest since the 70s of the 20th century. "This has had a devastating impact on the global economy, which continues to this day." He added that policymakers need to remain vigilant because the "double energy shock" affecting oil and gas supply has not happened for decades.
European natural gas prices rose this month as investors worried that pipeline disruptions near the Gaza Strip would affect global supplies. So far, however, the oil market has remained largely unaffected by the conflict. The benchmark price of Brent fell more than 1% to around $89 a barrel on Monday. If the crisis in the Middle East does not escalate, the current forecast is for wholesale prices to fall to $81 per barrel.
Nonetheless, the World Bank says the global economy is better able to withstand supply shocks than during previous conflicts in the Middle East. But the central bank is cautious, saying the global economy is still recovering from last year's surge in energy prices. Higher energy prices could lead to high inflation, as happened after Russia's invasion of Ukraine, and have a knock-on effect on other commodities.
World Bank Deputy Chief Economist Aihan Koase said: "If oil prices continue to rise, it will inevitably mean higher food prices. "If a severe oil price shock materializes, it will push up already high food price inflation in many developing countries," he added. By the end of 2022, more than 700 million people – nearly a tenth of the world's population – were undernourished. "The Bank is concerned that this recent escalation of the conflict will exacerbate food insecurity, not only in the region, but around the world.
The Bank report also outlines a better scenario of a 500,000 to 2 million b/d reduction in global oil supplies, with minor disruptions. In this case, oil prices will rise to the range of $93 to $102 per barrel. However, in either case, the impact on the global economy will be enormous.
Overall, the World Bank has expressed serious concerns about the prospect of higher oil prices that could be triggered by the escalation of the conflict in the Middle East. Despite the seeming calm of the current situation, any escalation of the conflict could lead to unpredictable consequences. Maintaining a stable and continuous energy supply is essential for the global economy. Therefore, policymakers and market participants need to closely monitor developments in the Middle East and be prepared for possible energy supply disruptions. At the same time, there is a need for further research and exploration on how to reduce dependence on traditional energy sources through alternative energy sources, energy-saving measures and sustainable development, so as to reduce the impact of similar crises on the global economy in the future.