The World Bank warned on Monday that a major expansion of the war between Israel and Hamas – escalating into a wider Middle East conflict – could send oil prices soaring by as much as 75 percent.
The prospect of a global energy shock in the wake of Hamas’ brutal attacks on Israel has been an urgent question for economists and policymakers who have spent the past year trying to tackle inflation.
Energy prices have remained largely under control since Hamas attacked Israel on October 7. But economists and policymakers are closely monitoring the war’s trajectory and studying past conflicts in the region as they try to determine the potential scale of the economic fallout of the current conflict. It is becoming more intense and widespread throughout the Middle East.
A new World Bank study suggests such a crisis could overlap with energy market disruptions already caused by Russia’s war in Ukraine, leading to heightened economic consequences.
“The latest conflict in the Middle East follows the biggest shock to commodity markets since the 1970s – Russia’s war with Ukraine,” Indermit Gil, the World Bank’s chief economist and senior vice president for development economics, said in a statement. . With report. “If the conflict escalates, the global economy will face a double energy shock for the first time in decades – not only from the war in Ukraine, but also from the Middle East.”
The World Bank estimates that global oil prices, which are currently hovering around $85 a barrel, will average $90 a barrel this quarter. The organization was forecasting a decline next year, but disruptions in oil supplies could drastically change those forecasts.
The bank’s worst exposure dates back to the 1973 Arab oil embargo that occurred during the Arab–Israeli War. A disruption of that severity could wipe out 800,000 barrels of oil per day from the market and send prices as high as $157 a barrel.
A less serious, but still disruptive, outcome would be a war that resulted in the 2003 war in Iraq, with oil supplies reduced by five million barrels per day and prices rising 35 percent to $121 per barrel.
A more modest outcome would be if the conflict resembled the 2011 civil war in Libya, in which two million barrels of oil per day were lost from global markets and prices rose 13 percent to $102 a barrel.
World Bank officials cautioned that the impact on inflation and the global economy will depend on the duration of the conflict and how long oil prices remain high. He said if high oil prices persist, it will push up the prices of food, industrial metals and gold.
The United States and Europe are trying to prevent global oil prices from rising in the wake of Russia’s attack on Ukraine. Western countries imposed price limits on Russia’s energy exports, a move intended to limit Moscow’s oil revenues and ensure that oil supplies remained uninterrupted.
The Biden administration also used its Strategic Petroleum Reserve to ease oil price pressure. A senior administration official told The New York Times last week that President Biden could authorize a new round of releases from the country strategic petroleum reserveAn emergency reserve of crude oil that is stored in underground salt caverns near the Gulf of Mexico.
Biden administration officials have publicly downplayed their concerns about the economic impact of the conflict, saying it is too early to predict the outcome. Treasury Secretary Janet L. Yellen said on a Bloomberg News program last week that oil prices have remained generally stable so far and that she has not yet seen signs that the war is having global economic consequences.
“What might happen if the war escalates?” Ms. Yellen said. “Of course there could be other meaningful consequences as well.”