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Crude oil prices could rise to more than $150 a barrel if the conflict in the Middle East escalates, the World Bank warned on Monday, risking a repeat of the oil price shock of the 1970s if the key producers cut supplies.
In its quarterly Commodity Markets Outlook report, the multilateral lender said a protracted conflict between Israel and Hamas could lead to large increases in energy and food prices in a “double shock” for commodity markets that They are still reeling from Russia’s full-scale invasion of Ukraine.
“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,” said Indermit Gill, chief economist and senior vice president for development economics at the Bank. World.
Under the bank’s baseline forecast, overall commodity prices are expected to fall 4.1 percent in the coming year, with oil prices falling to an average of $81 a barrel, down from $90 a barrel. dollars per barrel projected in the current quarter, as economic growth slows.
However, the report says this outlook could quickly reverse if the conflict in the Middle East escalates. In a worst-case scenario, global oil supply could shrink by 6 million to 8 million barrels a day, pushing prices up to $140 to $157 a barrel, if major Arab producers such as Saudi Arabia took steps to cut the exports.
In small and medium shock scenarios, prices could reach between $102 and $121 a barrel, the report adds. Current global oil demand is about 102 million b/d.
The war began when Hamas launched cross-border attacks from Gaza on October 7, killing more than 1,400 people and taking more than 230 hostages, according to Israeli officials. Israeli bombing has killed more than 8,000 people in Gaza and injured more than 20,000, according to Palestinian officials.
The conflict threatens to spread beyond Israel and the occupied Palestinian territories, and energy analysts warn that global exports could be affected if major oil producers such as Iran become actively involved.
European gas prices jumped this month to their highest levels since March as traders feared pipeline disruptions would hit global supplies, but oil markets have mostly downplayed the impact of the conflict.
Benchmark Brent prices fell more than 1 percent to around $89 a barrel on Monday, little changed from levels after the latest conflict broke out. Crude oil prices hit a record high of $147 a barrel in 2008, on the eve of the global financial crisis.
The World Bank said the global economy was better positioned to withstand a supply shock than in October 1973, when Arab OPEC members cut exports to the United States and other countries that supported Israel in the Yom Kippur War. , quadrupling crude oil prices.
The Middle East is less important for global oil exports than it was 50 years ago: it accounts for about 30 percent of supply, down from 37 percent in the 1970s.
But 30 percent is still a large proportion, warned Ayhan Kose, deputy chief economist at the World Bank. “When you think about oil prices, what happens in the Middle East doesn’t stay in the Middle East. “It has enormous global repercussions.”
But the report warned that there had not yet been a full recovery from the Russian invasion of Ukraine in February 2022, which Kose described as “traumatic for commodity markets.”
He told the Financial Times that a “really negative outcome” would occur if an escalation of the conflict led to a persistent rise in commodity prices, triggering “another wave of inflation” and forcing central bankers to act. Gil added: “Policymakers will have to be vigilant.”
According to the bank, this would have serious consequences for food security in poorer countries already facing rising levels of hunger. Increases in oil and gas prices would also increase shipping and fertilizer costs, making agricultural products more expensive.
“The rise in oil prices, if sustained, will inevitably mean an increase in food prices,” Kose said, adding that by the end of 2022 almost a tenth of the world’s population was undernourished.
“An escalation of the latest conflict would intensify food insecurity, not only within the region but also around the world,” Kose said.