A major escalation of the war between Israel and Hamas could potentially lead to a surge in oil prices of up to 75 percent, warns the World Bank. Economists and policymakers have been closely monitoring the conflict’s trajectory, as well as studying previous conflicts in the region to determine the potential economic repercussions. The World Bank’s study suggests that such a crisis could overlap with energy market disruptions caused by Russia’s war in Ukraine, further exacerbating the consequences. The bank’s worst-case scenario parallels the 1973 Arab oil embargo, where oil supply could be reduced by up to eight million barrels per day, with prices soaring to $157 per barrel.
In their analysis, the World Bank projects that global oil prices, currently around $85 per barrel, will average $90 per barrel this quarter. However, disruptions to oil supplies in the event of an escalated conflict could significantly alter these forecasts. The potential outcomes mentioned by the World Bank include a scenario similar to the 2003 Iraq war, with oil supply reduced by five million barrels per day and prices rising by 35 percent. A more moderate scenario compares the conflict to the 2011 civil war in Libya, with two million barrels per day lost from global markets and prices increasing by 13 percent.
World Bank officials emphasize that the effects on inflation and the global economy would depend on the duration of the conflict and how long oil prices remained elevated. Sustained higher oil prices could lead to increased prices for food, industrial metals, and gold. Attempting to prevent a spike in global oil prices, Western nations have introduced caps on Russia’s energy exports, and the Biden administration has tapped into the Strategic Petroleum Reserve to alleviate price pressures. While Biden administration officials have downplayed concerns about the economic impact of the conflict, they acknowledge the possibility of more significant consequences if the war expands further.