Oil prices could rise to $157 a barrel in the near term if an escalation of the Israel-Gaza conflict results in a big crude supply disruption in the Middle East, the World Bank has said.
In a “large disruption” scenario, comparable to the Arab oil embargo of 1973, global supply would shrink by six million to eight million barrels per day, driving up prices to a range of $140 to $157 a barrel, the World Bank said in its latest Commodity Markets Outlook on Monday.
The multilateral lender said global oil supply would be curtailed by three million to five million bpd under its “medium disruption” scenario – roughly equivalent to the Iraq war in 2003 – and this would push prices to a range of $109 and $121 a barrel.
Oil prices are estimated to rise to $93 to $102 a barrel if crude supply is reduced by 500,000 bpd to two million bpd, the bank said, citing its “small disruption” scenario.
“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, the World Bank’s chief economist and senior vice president for development economics.
“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.”
Under the World Bank’s baseline forecast, oil prices are projected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year amid a global economic slowdown.
Earlier this month, Goldman Sachs maintained its oil price forecast of $100 a barrel by June 2024 on supply cuts from Opec+ producers Saudi Arabia and Russia.
Swiss lender UBS expects Brent crude to trade in the range of $90 to $100 a barrel over the next 12 months.
A fall in Iranian crude exports by about 500,000 bpd could further constrain the already undersupplied market, potentially pushing Brent up to $100 to $110 a barrel, UBS strategist Giovanni Staunovo told The National.
“A broadening of the conflict across the region that pulled in other oil-producing countries could cause prices to spike even higher, depending on the magnitude of disruption,” he said.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said limited supply and growing global demand concerns should keep oil prices between $80 and $90 a barrel in the short term.
Meanwhile, overall commodity prices are projected to fall by 4.1 per cent next year before stabilising in 2025, the World Bank said.
Brent crude has risen by about 6 per cent since October 7 when Hamas, which rules Gaza, attacked southern Israel, killing about 1,400 people and taking more than 200 hostages.
Israel has retaliated with air strikes and total siege of the enclave, with the Palestinian death toll exceeding 8,000.
“The conflict’s effects on global commodity markets have been limited so far. Prices of agricultural commodities, most metals and other commodities have barely budged,” the World Bank said.
“[But] the outlook for commodity prices would darken quickly if the conflict were to escalate.”
The World Bank said that an escalation of the conflict could have more “moderate effects” than in the past as countries have reduced their oil dependence, diversified crude sources and increased the adoption of renewable energy.
The amount of oil needed to generate $1 of gross domestic product has fallen by more than half since 1970, the bank said.
“Higher oil prices, if sustained, inevitably mean higher food prices,” said Ayhan Kose, the World Bank’s deputy chief economist and director of its Prospects Group.
“If a severe oil-price shock materialises, it would push up food price inflation that has already been elevated in many developing countries.”
The World Bank also urged policymakers to remain alert as rising gold prices – up 8 per cent since the conflict began – signal geopolitical concerns and erosion of investor confidence.
The bank said that in case of an escalation, governments should avoid trade restrictions on food and fertiliser, as well as refrain from price controls and subsidies in response to higher prices.
“A better option is to improve social safety nets, diversify food sources and increase efficiency in food production and trade,” the World Bank said.
“In the longer term, all countries can bolster their energy security by accelerating the transition to renewable energy sources.”
-
A girl is rescued from the rubble of a building destroyed by Israeli air strikes in Jabalia refugee camp, in the northern Gaza Strip. AP Photo -
An Apache helicopter fires flares, seen from Sderot in southern Israel, close to the border with Gaza. Reuters -
Palestinians plug their phones into portable charging stations on a street in Khan Younis, Gaza. Bloomberg -
Residents search survivors among the rubble following Israeli strikes on Jabalia, northern Gaza. EPA -
Palestinians search for survivors and bodies following Israeli airstrikes at the Jabalia, the largest refugee camp in Gaza. AP -
Palestinians look for survivors among the rubble of destroyed buildings following Israeli strikes on Jabalia refugee camp in northern Gaza. AP -
Palestinians look for survivors among the rubble of destroyed buildings following Israeli strikes on Jabalia refugee camp in northern Gaza. AP -
A fire burns in western Gaza after an Israeli air strike. Reuters -
Missiles are fired from Israel towards the Gaza Strip. Getty Images -
Smoke rises from an explosion in Gaza. Getty Images -
A group of men survey the destruction following air strikes on Al Shatee camp in Gaza city, as Israeli forces entered the northern area of the Gaza Strip. AFP -
A man drives a damaged car following air strikes on Gaza city. AFP -
A man pushes a bicycle past the remains of buildings destroyed in Israeli strikes on Al Shatee camp in Gaza city. AFP -
A woman and children walk past a house destroyed in Israeli strikes on Al Shatee camp in Gaza city. AFP -
People dig through the rubble of a destroyed building following Israeli strikes on Al Shatee camp in Gaza city. AFP -
A man drives a damaged car past a building destroyed in Israeli strikes on Al Shatee camp in Gaza city. AFP -
People gather amid the destruction following Israeli strikes on Al Shatee camp in Gaza city. AFP -
Wrecked vehicles and rubble on the streets following Israeli strikes on Al Shatee camp in Gaza city. AFP -
Smoke rises from the northern Gaza Strip as Israeli air and ground forces amplified their military activities against Hamas. EPA -
An Israeli Apache attack helicopter flies close to the border with the Gaza Strip, near Israel's southern city of Ashkelon. AFP -
Israeli soldiers in an armoured personnel carrier on patrol near Israel's border with Gaza. EPA -
The crew of an Israeli tank prepare for ground operations near the border with Gaza. EPA -
Israeli soldiers prepare for ground manoeuvres at an undisclosed location in Israel near the border with Gaza. EPA -
The ruins of northern Gaza seen from Sderot in southern Israel. EPA -
Smoke and explosions caused by Israeli bombardment over northern Gaza. AP Photo -
An explosion on the Israel-Gaza border. Reuters -
A video grab shows fireballs and smoke rising above Gaza city following an Israeli attack. AFP -
An explosion in Gaza seen from Sderot in southern Israel. Reuters -
A video grab shows rockets fired from Gaza city. AFP -
Israeli air strikes in the northern Gaza Strip. AP Photo -
A video grab shows a salvo of rockets fired from Gaza city. AFP -
A flare trail fired by the Israeli army east of Khan Younis on the southern Gaza Strip. AFP -
Smoke from the bombing of the Gaza Strip over the Israeli border city of Ashkelon. AFP -
Flares over Gaza as seen from Sderot in southern Israel. Reuters
