The World Bank (WB) believes that further escalation of the conflict in the Middle East could threaten to increase oil prices by 75% — up to $ 157 dollars per barrel. Such an assessment is given in the October report of the World Bank "Prospects for commodity markets".
Experts note that the aggravation of the situation in the Middle East has so far had "a limited impact on the world trade and raw materials markets." "Oil prices have increased by about 6% since the beginning of the conflict. The cost of agricultural goods, most metals and other raw materials has not changed much," the report says.
As noted in the document, "if the conflict does not expand, its impact will be restrained." In this case, the cost of oil in this quarter will be about $90 per barrel, and next year, as global economic growth slows down, it will decrease to an average of $81 per barrel. On average, the cost of raw materials may decrease by 4.1% next year. "It is expected that prices for raw materials will stabilize by 2025," the World Bank experts note.
"In the event of an escalation, the outlook for commodity prices will quickly darken," the report says. Experts have identified three possible scenarios depending on how much oil supplies will be disrupted. In the event of a reduction in global supplies by 500,000 — 2 million barrels per day, oil prices may rise by 3-13%, to $93-102 per barrel. A reduction in the volume of supplies by 3 million — 5 million barrels per day will lead to an increase in the cost of oil by 21-35%, to $ 109-121 per barrel.
A major disruption of oil supplies will, according to the World Bank, be comparable to the 1973 oil crisis. Experts believe that the volume of oil supplies in this case may decrease by 6 million — 8 million barrels per day, which will cause a jump in prices by 56-75% — up to $ 140-157 per barrel.
Indermit Gill, Chief Economist at the World Bank, stressed that in the event of a further escalation of tensions in the Middle East against the background of the Ukrainian crisis, "the global economy may face a double-force shock for the first time in several decades."
Natural gas and coal
Experts note that the aggravation of the Palestinian-Israeli conflict has led to increased volatility in natural gas prices. At the same time, if the conflict does not grow, energy prices, according to World Bank estimates, will decrease by the end of this year compared to last year's figures "as the markets rebalance" against the background of the Ukrainian crisis. At the same time, further aggravation of the situation in the Middle East and rising oil prices may lead to a rise in the price of natural gas, especially in Europe and Asia.
The cost of coal against the background of events in the Middle East has "slightly increased," World Bank experts point out. At the same time, experts expect a decrease in prices for this energy carrier in the coming years, but they believe that it will not fall below the figures recorded before the coronavirus pandemic. The escalation of the situation in the Middle East will also lead to an increase in coal prices, the report emphasizes.
Impact on food security
In turn, Deputy Chief Economist of the World Bank Ayhan Kose noted that maintaining a high level of oil prices "will inevitably lead to an increase in food prices." According to World Bank experts, in the event of a further escalation of the conflict in the Middle East, the authorities of developing countries will need to take measures to combat inflation.
"Given the threat of deterioration in food security, governments should avoid trade restrictions, such as banning the export of food and fertilizers. Such measures often exacerbate price volatility and lead to a decrease in food security," the report notes.
In addition, the World Bank experts recommend abandoning price controls and price subsidies as measures to combat the rising cost of food and oil. In their opinion, it is necessary to improve social support mechanisms, diversify sources, as well as increase food production and trade. At the same time, World Bank experts note that the transition to renewable energy sources may contribute to mitigating the effects of oil price spikes in the long term.