In a special report, the World Bank has warned that if the Israel-Hamas war escalates into a wider regional conflict, crude oil prices could soar to as high as $140-$157 per barrel. This represents a 76% increase from the current price of crude oil. The World Bank compares this scenario to the initial disruption caused by the Arab oil embargo in 1973, which resulted in a loss of nearly 7.5% of the global oil supply at that time.
Under the worst-case scenario presented by the World Bank, oil inventories would decline by an estimated 6 million-8 million barrels a day. However, even a small disruption of 500,000 to 2 million barrels a day would be enough to drive crude prices up to a range of $93-$102. In a medium level of disruption with inventories dropping by 3 million-5 million barrels a day, prices could reach $109-$121. The organization cautions that while a small decline in oil supply may lead to modest price increases, more widespread disruptions could result in substantial dislocations in oil markets and initially sharp price spikes.
The World Bank currently expects crude prices to average $90 for the current quarter, with a continued decline in demand for oil into 2024. However, if crude prices do rise, it would have a cascading effect on other global commodities. Food prices would surge due to increased production and transportation costs, while rising fertilizer prices would further exacerbate the situation.
In addition, industrial metals like aluminum and zinc would face upside risks as their energy-intensive production would be impacted by higher oil prices. Moreover, gold, renowned as a safe-haven asset, has already risen 8% since the conflict began and would likely continue to increase in value. Overall, a wider regional conflict involving Israel and Hamas has the potential to not only impact crude oil prices but also other key commodities, leading to economic disruptions on a global scale.
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