By: Will Kessler, Daily Caller News Foundation
The World Bank warned on Monday that the price of a barrel of oil could reach “uncharted waters” if the conflict between Hamas and Israel intensifies.
A large disruption scenario resulting from an escalation in the war between Israel and Hamas could cause global oil supply to fall by around 6-8%, which would push oil prices up by 56-75% of the 2023 fourth quarter baseline, while a medium disruption of around 3-5% would increase oil prices by 21-35%, according to the World Bank’s Commodity Markets Outlook report. The invasion of Ukraine is already placing constraints on the supply of oil, and a potentially destabilized Middle East would apply even more pressure to the market.
“The latest conflict in the Middle East has raised geopolitical risks for commodity markets,” the report warns. “So far, its impact on prices has been small. However, previous military conflicts in the region often resulted in higher prices and volatility in commodity markets. This suggests that an escalation of the conflict could trigger sharp oil supply disruptions, depending on the duration and scale of the escalation.”
Since the beginning of the conflict in early October, energy prices have already increased by 9%, according to the World Bank report. Oil prices have risen 6% in that same time period, fueled by uncertainty about the future of the Middle East.
Global oil demand also reached a new high of 103 million barrels per day in the third quarter of 2023, according to the World Bank report. Growth factors included easing stress in the banking industry for advanced economies enabling more capital flow, better than expected air and transport activity and consumption growth in China.
Recent production cuts by the Organization of Petroleum Exporting Countries have been offset by increased production from other countries, including the Americas, where the U.S. remains the world’s largest oil producer, according to the World Bank report.
The conflict could also increase global and domestic inflation as the price of fuel rises, adding expenses to all industries that use the commodity. An expanded conflict could even trigger a U.S. and a global recession following the shock from heightened oil prices.
“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,” Indermit Gill, the World Bank’s chief economist, said in a press release. “That had disruptive effects on the global economy that persist to this day. Policymakers will need to be vigilant. 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.”
The World Bank deferred the Daily Caller News Foundation to the report.