Oil could surge up to a record $157 per barrel if the Middle East conflict broadens and creates a large disruption in the markets, the World Bank has warned.
The grim forecast is part of the institution’s Commodity Markets Outlook, where it lays out three risk scenarios amid the ongoing war between Israel and Hamas and the continuing conflict in Ukraine.
In a “large disruption” scenario the global oil supply would fall by 6 million to 8 million barrels per day. That would drive prices up by 56% to 75% initially to between $140 and $157 a barrel, says the report.
The World Bank also describes a “medium disruption” risk scenario in which crude reaches $109 to $121 per barrel. In the case of a “small disruption” oil prices would increase to a range of $93 to $102 a barrel.
The report says high prices of oil and other commodities “would intensify food insecurity in the region and across the world.”
“If a severe oil price shock materializes, it would push up food price inflation that has already been elevated in many developing countries,” said Ayhan Kose, the World Bank’s deputy chief economist.
Under the World Bank’s baseline outlook, crude is expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel in 2024 as the global economy slows.
West Texas Intermediate (CL=F) and Brent (BZ=F) crude futures hovered above $82 and $88 per barrel Tuesday midday, down about 8% over the last 10 days.
Prices surged more than 4% in one day after Hamas attacked Israel earlier this month, amid fears the fighting would bring in nearby Iran, an oil-producing country.
The World Bank report points out the conflict’s modest impact on commodity prices so far reflects a more diversified world oil supply market, individual countries’ petroleum reserves, and reduced overall oil dependence.