Oil prices could surge as much as 75% with Middle East war, World Bank warns
Sign up now: Get ST's newsletters delivered to your inbox
Energy prices have remained largely contained since militant group Hamas invaded Israel on Oct 7.
PHOTO: AFP
Follow topic:
WASHINGTON – A major escalation of the war between Israel and militant group Hamas – one that spills over into a broader Middle East conflict – could send oil prices surging as much as 75 per cent, the World Bank warned on Monday.
The potential for a global energy shock in the wake of Hamas’ brutal attack on Israel has been a pressing question for economists and policymakers, who have spent the past year trying to combat inflation.
Energy prices have remained largely contained since Hamas invaded Israel on Oct 7. But economists and policymakers have been closely monitoring the trajectory of the war and studying previous conflicts in the region as they try to determine the potential scale of economic repercussions if the current conflict intensifies and broadens across the Middle East.
“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,” Dr Indermit Gill, the World Bank’s chief economist and senior vice-president for development economics, said in a statement that accompanied the report.
“If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades.”
The World Bank projects that global oil prices, which are currently hovering around US$85 a barrel, will average US$90 a barrel this quarter.
The bank’s worst-case scenario is pegged to the 1973 Arab oil embargo, which took place during the Arab-Israeli war. A disruption of that severity could remove as much as eight millions barrels of oil a day off the market and send prices to as high as US$157 per barrel.
A less severe outcome would be if the war plays out like the 2003 Iraq War, with oil supply being reduced by five million barrels a day and prices rising as much as 35 per cent to US$121 a barrel.
A more modest outcome would be if the conflict parallels the 2011 civil war in Libya, with two million barrels a day of oil lost and prices rising as much as 13 per cent to US$102 per barrel.
World Bank officials cautioned that the effects on inflation and the global economy would depend on the duration of the conflict and how long oil prices remained elevated. They said that if higher oil prices were sustained, however, that would lead to higher prices for food, industrial metals and gold. NYTIMES
