World Bank Says Wider Middle East Conflict Could Push Oil Prices into ‘Unchartered Waters’

The World Bank on Monday mentioned that oil costs could possibly be pushed into “uncharted waters” if the Israel-Hamas warfare intensifies, which may lead to elevated meals costs worldwide. The World Bank’s Commodity Markets Outlook discovered that whereas the results on oil costs ought to be restricted if the battle doesn’t widen, the outlook “would darken quickly if the conflict were to escalate.”

“Although the global economy is in a much better position than it was in the 1970s to cope with a major oil-price shock, an escalation of the latest conflict in the Middle East—which comes on top of disruptions caused by the Russian invasion of Ukraine—could push global commodity markets into uncharted waters,” the worldwide lender mentioned in an announcement.

The report finds that the results on oil ought to be restricted if the battle doesn’t widen. Under the Bank’s baseline forecast, oil costs are anticipated to common $90 a barrel within the present quarter earlier than declining to a median of $81 a barrel subsequent yr as world financial progress slows. “Overall commodity prices are projected to fall 4.1 percent next year. Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5 percent in 2024. Commodity prices are expected to stabilize in 2025,” the World Bank mentioned.

The battle’s results on world commodity markets have been restricted thus far. Overall oil costs have risen about 6 p.c because the begin of the battle. Prices of agricultural commodities, most metals, and different commodities have barely budged, the lender mentioned.

The assault on Israel by the militant outfit Hamas and the following Israeli army operation towards Hamas has raised fears of a wider Mideast battle. Indermit Gill, the World Bank’s chief economist, mentioned “Russia’s invasion of Ukraine” has already had disruptive results on the worldwide financial system “that persist to this day.” “If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades — not just from the war in Ukraine but also from the Middle East,” Gill mentioned.

“Higher oil prices, if sustained, inevitably mean higher food prices,” mentioned Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “If a severe oil-price shock materializes, 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. An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world.”

The world lender mentioned the truth that the battle has thus far had solely modest impacts on commodity costs could replicate the worldwide financial system’s improved potential to soak up oil value shocks. Since the power disaster of the Nineteen Seventies, the report says, international locations internationally have bolstered their defenses towards such shocks.