The World Bank warned this Monday that an escalation in the Middle East conflict could drive the price of oil to unknown levels, which could be reflected in a global increase in food prices.
According to the most recent edition of the World Bank’s Commodity Market Outlook report, “the global economy is now much better prepared to deal with large oil price shocks than it was in the 1970s.”
But an escalation in the war between Israel and Hamas, along with “disruptions caused by the Russian invasion of Ukraine, could push global commodity markets” into uncharted territory.
According to the report, the effects of the conflict on these markets “have so far been limited.”
“World oil prices have increased by around 6% since the start of the conflict” and in terms of agricultural products there have been practically no changes, he says.
According to the World Bank’s baseline forecast, “Oil prices are expected to average $90 per barrel this quarter, before falling to an average of $81 per barrel next year as global economic growth slows.” slow down.”
However, the outlook “would worsen rapidly if the conflict escalates” and the report outlines what could happen under three risk scenarios “based on historical experience since the 1970s”, depending on the degree of oil supply disruption. .
In a “small shock” scenario, global oil supply would be reduced by between 500,000 and 2 million barrels per day, roughly equivalent to the reduction seen during the Libyan civil war in 2011. In this scenario, the price of oil would rise initially 3%. 13% in relation to the average for the current quarter and a barrel would be between 93 and 102 dollars.
In a “medium disruption” context (equivalent to the 2003 Iraq War), global oil supply would decline by 3 to 5 million barrels per day, causing oil prices to initially rise by 21% and 35%, that is, from 109 to 121 dollars per barrel.
In a “major disruption” scenario (comparable to the 1973 Arab oil embargo), global oil supplies would fall by 6 to 8 million barrels per day, causing prices to initially rise by 56% to 75%. , which would be equivalent to a price of 140 to 157 dollars per barrel.
“The latest conflict in the Middle East follows the biggest shock to commodity markets since the 1970s, namely Russia’s war with Ukraine,” said Indermit Gill, chief economist at the World Bank, quoted in the report.
“We have seen disruptions in the global economy that persist to this day,” he added, warning that “if the conflict escalated, the global economy would face a double energy shock for the first time in decades, not only as a result of the war in Ukraine, but also in the Middle East.”
Rising oil prices, “when it continues, inevitably translate into rising food prices,” said Ayhan Kose, deputy chief economist at the World Bank and director of the Outlook Group.
“If oil prices suffer a serious shock, it would increase food price inflation, which has already been high in many developing countries. By the end of 2022, more than 700 million people – almost a tenth of the world population – were suffering from malnutrition. An escalation of conflicts would intensify food insecurity, not only in the region, but also in the rest of the world,” he warned.
Source: TSF
