World Bank Warning: Rising Oil Prices Due to Regional Risks

The World Bank has warned that the price of oil could see increases in the future, presenting three risk scenarios in a recent report titled “Commodity Markets Outlook.” While the international financial institution expects the global oil price to decrease to an average of $81 per barrel in 2024, it emphasized that an escalation of the conflict in the Middle East could lead to significant oil price hikes.

The report outlines three possible scenarios:

Scenario of Minor Disruption: Similar to the reduction in oil production observed during the 2011 Libyan civil war (between 500,000 and 2,000,000 barrels per day), this could drive oil prices to values between $93 and $102 per barrel in the fourth quarter of 2023.

Moderate Disruption Scenario: Equivalent to the Iraq War in 2003, which could reduce global oil deliveries by 3-5 million barrels per day, potentially pushing oil prices to values between $109 and $121 per barrel.

Most Pessimistic Scenario: Involving a major disruption similar to the impact of the 1973 Arab oil embargo, which could lead to a reduction of global oil deliveries by 6-8 million barrels per day. In this case, oil prices could initially reach values between $140 and $157 per barrel.

The warning underscores that sustained higher oil prices will inevitably result in significant increases in food prices, which could affect developing countries where food prices are already high.

The report also notes that China’s demand for oil has been surprisingly resilient, despite disruptions in the real estate sector, recording a 12% increase in the first nine months of 2023 compared to the same period in 2022. Additionally, Russia’s oil production and exports remained relatively stable, even with Western sanctions on Russian oil. These sanctions were largely offset by increased exports to China, India, and Turkey.

In conclusion, amid the escalation of the conflict between Israel and Hamas, the World Bank warns that developing countries should consider the possibility of rising inflation. Governments are also urged to avoid trade restrictions, such as banning food and fertilizer exports, as these measures can often exacerbate price volatility and food insecurity.

Furthermore, the price of oil saw a decline in the Asian market following Israel’s ground offensive in the Gaza Strip, which did not prompt a significant military response from Iran and its allies, thus calming concerns about regional oil supply disruptions. The Brent crude oil, a global benchmark, dropped below $90, while West Texas Intermediate oil fell to nearly $84 per barrel. Nevertheless, Israeli authorities announced a gradual approach to the conflict, reducing concerns of regional escalation.