By Adedapo Adesanya
The World Bank has warned that oil prices could soar to a record high of $157 a barrel if the war between Israel and Hamas leads to a repeat of the full-scale conflict in the Middle East witnessed 50 years ago.
The Bretton-Wood institution in the first major assessment of the economic risks of an escalation of the war beyond Gaza’s borders on Monday said there was a risk of the cost of crude entering “uncharted waters”.
Recall that in 1973, Arab members of the Organisation of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States in retaliation for the US decision to re-supply the Israeli military and to gain leverage in the post-war peace negotiations.
The oil embargo led to a sudden fourfold increase in the cost of crude, ushering in higher inflation and rising unemployment that brought the long postwar boom in the global economy to an end.
With recent developments, the global lender sketched three paths that oil prices could take following the conflict. These are “small disruption”, “medium disruption”, or “large disruption”.
According to the World Bank, a “large disruption” scenario comparable to the Arab oil boycott of the West in 1973 would create supply shortages of up to 75 per cent that would lead to the price of a barrel of oil increasing from about $90 to between $140 and $157.
A “medium disruption” scenario – roughly equivalent to the Iraq war in 2003 – where the global oil supply would be reduced by 3 million to 5 million barrels a day could cause a rise by 21 per cent to 35 per cent to between $109 and $121 a barrel.
In the “small disruption” scenario, in which the global oil supply would be reduced by 500,000 to 2 million barrels a day, roughly equivalent to the reduction seen during the Libyan civil war in 2011, the oil price would rise to a range of $93 to $102 a barrel.
In its assessment, the bank said the Israel-Hamas war so far had little impact on commodity prices.
Oil prices had risen by just about 6 per cent, but agricultural commodities, industrial metals and other commodities had “barely budged”, it said.
Under the World Bank’s baseline forecast, oil prices will average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows.
“The outlook for commodity prices would darken quickly if the conflict were to escalate,” the lender added.
It also called on policymakers to be vigilant because “If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades – not just from the war in Ukraine but also from the Middle East.”
The bank said the shock to the global economy would not be confined to energy costs but would also result in hundreds of millions going hungry as a result of higher food prices.
Dipo Olowookere