The World Bank has warned that oil prices could soar to a record high of more than US$150 a barrel if the war between Israel and Hamas leads to a repeat of the full-scale conflict in the Middle East witnessed 50 years ago.
In the first major assessment of the economic risks of an escalation of the war beyond Gaza’s borders, the World Bank indicated that there was a risk of the cost of crude entering “uncharted waters.”
The Bank stated in its latest commodity markets outlook released last week that the shock to the global economy would not be confined to energy costs but would also result in hundreds of millions going hungry as a result of higher food prices.
In its assessment, the Bank indicated that the Israel-Hamas war had had little impact on commodity prices so far.
Oil prices had risen by about six percent, but agricultural commodities, industrial metals and other commodities had “barely budged”.
It added: “The outlook for commodity prices would darken quickly if the conflict were to escalate.”
Under the World Bank’s baseline forecast, oil prices will average US$90 a barrel in the current quarter before declining to an average of US$81 a barrel next year as global economic growth slows.
World Bank’s Chief Economist, Indermit Gill, in his comment on the outlook emphasised the need for policymakers to be vigilant.
“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. That had disruptive effects on the global economy 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,” he said.
And, World Bank’s Deputy Chief Economist and Director of the Prospects Group, Ayhan Kose, warned that higher oil prices, if sustained, inevitably meant higher food prices.
“If a severe oil-price shock materialises, 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,” he said.
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