Global energy prices are expected to rise by 24 per cent this year to their highest level in four years, as markets continue to reel from the Iran war, which has now entered its third month, the World Bank has said.
The conflict, which has tipped the oil-rich Middle East region into its worst geopolitical crisis in decades, will affect global growth and stoke inflation, and have “serious consequences for job creation”, the multilateral lender said in its latest Commodity Markets Outlook on Tuesday.
The rise in oil prices to levels last seen at the start of the Russia-Ukraine war in 2022 will also force a price surge in the overall commodities market, which is expected to rise by 16 per cent annually this year.
“The war is hitting the global economy in cumulative waves: first through higher energy prices, then higher food prices, and finally higher inflation, which will push up interest rates and make debt even more expensive,” said Indermit Gill, the World Bank’s chief economist. “The poorest people, who spend the highest share of their income on food and fuels, will be hit hardest.”
Developing economies, already struggling under heavy debt burdens, will face increased stress at every level, Mr Gill said. “All of this is a reminder of a stark truth: war is development in reverse,” he added.
The report comes as the UAE announced on Tuesday that it will withdraw from the Opec oil producers group after more than five decades. The decision will take effect on May 1. The statement was delivered as Opec prepared to meet in Vienna on Wednesday. It will also leave the broader Opec+.
Global oil prices on Tuesday climbed past $110 a barrel, edging towards the $120 a barrel intraday high hit on March 19, as a peace deal to end the conflict that has killed thousands in the region remains elusive.
While a fragile US-Iran truce is in place, the Strait of Hormuz, the vital trade route through which a fifth of global oil and gas normally passes, remains under a double blockade by Iran and the US. Vessel traffic through the narrow passage has fallen sharply since the conflict began on February 28.
Surging crude prices
Brent, the benchmark for two thirds of the world's oil, was trading 2.77 per cent higher at $111.23 a barrel at 4.51pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was also up 3.48 per cent to $99.72 per barrel.
Crude prices have swung wildly in recent weeks on war-driven headlines. Goldman Sachs on Monday warned that crude prices could approach $120 a barrel later this year amid a continued stalemate in peace talks, which leaves shipments from the Gulf region uncertain for longer.
The global investment bank raised its fourth-quarter forecast for Brent crude prices to $90 a barrel and WTI to $83 a barrel, warning that massive Middle East production losses are driving global oil inventories lower.
With the world facing an estimated 10 million barrels per day of oil supply reduction, the largest supply shock on record, the World Bank expects Brent to average $86 a barrel in 2026, up sharply from $69 a barrel in 2025. This forecast assumes that the most acute disruptions end in May and that shipping through the Strait of Hormuz gradually returns to prewar levels by late 2026.
However, Brent could reach as high as $115 a barrel this year if critical oil and gas facilities – which have already been hit in Iran and the Arab world – sustain more damage and export volumes are slow to recover. Such a scenario will have ripple effects on prices for fertilisers and alternative energy sources such as biofuels, pushing inflation in developing economies to 5.8 per cent this year.
“The succession of shocks over the decade has sharply reduced the fiscal space available to respond to the current historic energy supply crisis,” said Ayhan Kose, the World Bank’s deputy chief economist. “Governments must resist the temptation of broad, untargeted fiscal support measures that could distort markets and erode fiscal buffers.”
The focus instead should be on rapid, “temporary support targeted to the most vulnerable households”, he added.
Commodities shock
The World Bank expects fertiliser prices to jump by almost a third in 2026, driven by a 60 per cent surge in urea rates. The affordability level of fertilisers will fall to its worst point since 2022, which will erode farmers’ incomes and threaten future crop yields.
If the conflict proves more prolonged, these pressures on food supply and affordability could push up to 45 million more people into acute food insecurity this year, according to the World Food Programme.
Prices for base metals, including aluminium, copper and tin, are also expected to reach all-time highs in 2026, amid strong demand from industries and sectors including data centres, electric vehicles, and renewable energy.
“Precious metals [also] continue to break price and volatility records, with average prices forecast to increase 42 per cent in 2026, as geopolitical uncertainty fuels demand for safe-haven assets,” the World Bank said.
Inflation in the developing world is now projected to average 5.1 per cent in 2026 – a full percentage point higher than was expected before the war. Developing economies are now expected to grow 3.6 per cent in 2026, a downwards revision of 0.4 percentage points since January.
“Economies directly impacted by conflict will be hardest hit, and 70 per cent of commodity importers and more than 60 per cent of commodity exporters worldwide could see weaker growth than was projected in January,” the World Bank report added.
