World Bank Cautions of Potential Double Shock in Oil and Food Prices Amid Escalating Israel-Hamas Conflict

by Ella

In a quarterly report on the commodity market, the World Bank has raised concerns over the potential impact of an escalating Middle East crisis on oil and food prices. The report highlights that oil prices could surge significantly, reaching as high as $157 (€147) per barrel if the Israel-Hamas war intensifies.

The ongoing Israel-Hamas conflict has thus far resulted in a modest 6% increase in oil prices since its commencement. In contrast, prices of agricultural commodities, most metals, and other commodities have experienced minimal fluctuations.


Based on its baseline scenario, the World Bank anticipates global oil prices to average $90 per barrel in the final quarter of this year, with an average price of $81 expected in 2023. This projection is driven by an anticipation of reduced demand due to slowing economic growth.


As of the report’s release, the European benchmark Brent crude oil was trading at $88.3 at 11h CET in the ICE Intercontinental Exchange Europe.


Looking ahead to the broader commodity market, the World Bank predicts a 4.1% decrease in prices next year before stabilizing in 2025. This decline is attributed to increased supplies, particularly in the agricultural commodities sector, leading to expectations of more affordable prices in the coming year. Prices of base metals are also projected to decrease by 5% in 2024.


The World Bank’s Commodity Markets Outlook outlines three potential risk scenarios associated with the Israel-Hamas conflict, drawing parallels with historical regional conflicts since the 1970s.

1. Least Disruptive Outcome: In this scenario, a global oil supply reduction of 500,000 to 2 million barrels per day is foreseen, resulting in a 3% to 13% increase in oil prices, within a range of $93 to $102 per barrel.

2. Medium Disruption Scenario: Comparable to the Iraq war in 2003, this scenario envisions a more substantial global oil supply reduction of 3 million to 5 million barrels per day. As a consequence, oil prices could rise by 21% to 35%, initially ranging between $109 and $121 per barrel.

3. Large Disruption Scenario: Drawing parallels with the Arab oil embargo in 1973, this scenario anticipates a significant reduction in the global oil supply by 6 million to 8 million barrels per day. In such a case, oil prices could soar by 56% to 75%, initially reaching between $140 and $157 per barrel.

Policymakers are urged to remain vigilant, as an escalation of the conflict would expose the global economy to a dual energy shock, resulting not only from the war in Ukraine but also from the Middle East.

Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics, noted, “The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s—Russia’s war with Ukraine. That had disruptive effects on the global economy that persist to this day. Policymakers will need to be vigilant.”

Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group, highlighted the linkage between higher oil prices and increased food prices, stating, “Higher oil prices, if sustained, inevitably mean higher food prices. If a severe oil-price shock materializes, it would push up food price inflation that has already been elevated in many developing countries.”



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