The intensifying conflict between Israel and Hamas could potentially trigger a significant surge in oil prices, leading to global food price inflation, according to the World Bank. The organization’s Commodity Markets Outlook report outlines three potential scenarios for global oil supply disruptions, each corresponding to different levels of conflict escalation.
In a small disruption scenario, prices could fall to $81 per barrel. However, a medium disruption, similar to the supply disruptions witnessed during the Iraq war, could decrease supply by 3-5 million barrels daily and inflate prices by 35%. A large disruption, comparable to the Arab oil embargo of 1973, could see supply drop by 6-8 million barrels daily with prices soaring by 56%-75%.
The ongoing unrest has increased fears of an expanded Mideast conflict. Israeli Prime Minister Benjamin Netanyahu has initiated a “second stage” in the war, while Hamas is seeking assistance from Iran-backed Hezbollah. Since the beginning of the conflict, oil prices have risen by approximately 6%, and gold has seen an approximate 8% increase.
The World Bank’s chief economist highlighted that the continuing effects of Russia’s invasion of Ukraine are still disrupting the global economy. An escalated Mideast conflict would constitute a dual energy shock that could lead to a surge in food prices and exacerbate global food insecurity.
US Treasury Secretary Janet Yellen confirmed that the Biden administration is closely monitoring the economic implications of Israel’s military operation against Hamas. The International Energy Agency Executive Director underscored the criticality of the situation, questioning the safety and security of oil and gas as energy choices amid Russia’s invasion and the ongoing violence in Gaza.
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