Oil prices might touch $102 due to Middle East tensions
World Bank predicts that global oil prices will reach $90 per barrel in the fourth quarter, dropping to an average of $81 this year because of slowed growth and decreased demand. However, they caution that rising tensions in the Middle East could cause a significant increase in prices. The recent Commodity Markets Outlook report highlights that oil prices have only experienced a 6% increase since the beginning of the Israel-Hamas conflict, while agricultural commodities, and most metals "have barely budged."
Three risk scenarios based on historical regional conflicts
In the World Bank's report, three risk scenarios are presented based on historical instances of regional conflicts since the 1970s. A "small disruption," similar to oil output reduction during the 2011 Libyan civil war (ranging from 500,000 to two million barrels per day), could cause oil prices to rise to between $93-102 per barrel. A "medium disruption," comparable to the 2003 Iraq war, would result in a supply reduction of 3-5 million bpd, with prices ranging from $109-121 per barrel.
Large disruption scenario and impact on food prices
The "large disruption" scenario mirrors the effects of the 1973 Arab oil embargo, causing a global oil supply decrease of 6-8 million bpd. This would initially push prices up to $140-157 per barrel, an increase of up to 75%. "Higher oil prices, if sustained, inevitably mean higher food prices," stated Ayhan Kose, the World Bank's Deputy Chief Economist. He further explained that if severe oil price shock occurs, it would contribute to high food price inflation in many developing countries.
