World Bank: Oil prices are approaching “uncharted waters”

The group issued a warning that if tensions between Israel and Hamas continue to escalate, millions of people may die hungry.

The World Bank cautioned in its Commodity Markets Outlook on Monday that oil prices may reach “uncharted waters” if Israel’s confrontation with Hamas continues to escalate.

Although the battle hasn’t had a significant impact on oil prices thus far, the World Bank issued a warning that things “would darken quickly if the conflict were to escalate.” The organization’s analysis presented three possible futures, depending on how much the world’s oil supply would be disrupted by rising hostilities.

The bank projected that the market would primarily absorb a “small disruption,” which would remove 500,000 to 2 million barrels of oil from circulation each day. In the face of slower economic development, prices would gradually rise from the current $90 a barrel to between $93 and $102, wiping out the $9 decline it had previously forecast by the following year.

WTO warns that the world economy may lose 5% of its GDP.

According to the study, there might be a “medium disruption,” which is comparable to the US war in Iraq in 2003, that would cause prices to rise by 21% to 35% and remove 3 to 5 million barrels from supply each day, bringing the price of oil down to between $109 and $121 a barrel.

Prices could rise by 56% to 75% in the event of a “big disruption,” which the bank compared to the 1973 Arab oil embargo and would remove 6 to 8 million barrels from the supply every day. As a result, the price per barrel would increase to $140–$157.

According to World Bank deputy chief economist Ayhan Kose, rising oil costs will result in skyrocketing food prices, worsening the country’s already dire food situation and leaving millions of people hungry. He claimed that because of the crisis in Ukraine, “food price inflation, which has already been elevated in many developing countries, would push up if a severe oil price shock materialises.”

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By the end of 2022, he said, disruptions in commodity markets brought on by the conflict had left about 700 million people undernourished. This is a tenth of the world’s population.

Indermit Gill, the chief economist at the World Bank, urged policymakers to “be vigilant,” stating that if the conflict in Gaza escalates further, “the global economy would face a dual energy shock for the first time in decades – not just from the war in Ukraine,” which he called “the biggest shock to commodity markets since the 1970s,” but also from the Middle East.

Since Hamas’ attack on Israel earlier this month, gasoline prices have risen by 6%, but precious metals and agricultural commodities have “barely budged,” according to a World Bank report.

On Monday, Israel increased the intensity of its ground attack on Gaza, allegedly moving its tanks in various directions into Gaza City. Intense bombing of Gaza has resulted in over 8,000 Palestinian deaths and hundreds of thousands of displaced people—the highest number in Israeli history.