Middle East tensions may push oil prices to $157: World Bank
An Escalation in Middle East Conflict Could Send Crude Oil Prices Soaring to $157
The World Bank has released a new outlook stating that an escalation of the latest conflict in the Middle East could cause crude oil prices to skyrocket. According to their projections, oil prices are expected to average $90 per barrel this quarter and decline to $81 per barrel next year due to slowing global economic growth.
Despite the war in Israel, U.S. and Brent crude futures have been slumping. West Texas Intermediate (WTI) crude oil futures have dropped 7.5 percent this month to below $83, while Brent has fallen around 4 percent in October to below $87 a barrel.
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However, the World Bank warns that the outlook for energy prices could quickly worsen if the conflict escalates.
The report outlines three potential “disruption” scenarios that could lead to higher oil prices. In a “small disruption” scenario, global oil supply could decrease by up to 2 million barrels per day, causing crude prices to range between $93 and $102 per barrel. A ”medium disruption” could eliminate 3 to 5 million barrels per day, driving oil prices up to $109 to $121. In a worst-case ”large disruption” scenario, worldwide oil supplies could shrink by 6 to 8 million barrels per day, pushing the cost of a barrel of oil as high as $157.
If the conflict surrounding Israel were to escalate, it would create a “dual energy shock” for the global economy, says Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics. This would compound the effects of the ongoing war between Russia and Ukraine, which has already had a significant impact on commodity markets.
A prolonged period of higher oil prices would also lead to increased food prices, particularly affecting developing countries with already vulnerable populations, warns Ayhan Kose, the World Bank’s deputy chief economist and director of the Prospects Group.
Despite limited effects on global commodity markets thus far, policymakers need to remain vigilant. The conflict in the Middle East has the potential to disrupt energy production and transportation, which could have severe consequences for global oil markets.
‘Playing With Fire’
While many experts believe that the Israel-Hamas war will remain contained, there are concerns that it could expand to involve other countries in the region, such as Iran. Such a scenario would cause significant uncertainty and potentially send oil prices well above $100 per barrel.
Although there have been occasional jumps in oil prices, momentum has quickly faded as investors await actual disruptions to energy supplies. However, global oil markets are already extremely tight, leaving little room for any supply disruptions.
Given the current situation in the Middle East and ongoing interventions by OPEC+ (Organization of the Petroleum Exporting Countries allies), betting against oil prices would be risky, according to Fawad Razaqzada, a market analyst at City Index and FOREX.com.
Various forecasts have warned of the volatility in oil prices due to the Middle East conflict, and any further developments in the region could push crude towards the $100 mark.
What factors could potentially disrupt oil production in major oil-producing regions such as the Middle East, and what risks does this pose to global oil supply?
The World Bank highlights that such disruptions could arise due to various factors, including sabotage, military conflicts, or political tensions in major oil-producing regions such as the Middle East. The ongoing conflict in the region between Israel and its neighboring countries presents a significant risk to global oil supply.
The Middle East is responsible for producing a substantial portion of the world’s crude oil. If the conflict intensifies and disrupts production in key oil-producing nations like Saudi Arabia, Iraq, or Iran, it could have severe implications for the global oil market, leading to a sharp increase in prices.
Experts believe that the current slump in oil prices is primarily driven by concerns over weakening global economic growth. However, the potential impact of the Middle East conflict on oil prices cannot be ignored. The World Bank warns that an escalation in the conflict could completely change the trajectory of oil prices, causing them to skyrocket.
The scenarios outlined by the World Bank paint a worrying picture. Even in the “small disruption” scenario, where global oil supply decreases by 2 million barrels per day, oil prices could range from $93 to $102 per barrel. This would represent a significant increase from the projected average of $90 per barrel for this quarter.
In the event of a “medium disruption,” where oil supply decreases by 3 to 5 million barrels per day, prices could climb even higher, reaching $109 to $121 per barrel. These price levels would have a substantial impact on global economies, leading to higher costs for businesses and consumers alike.
The most alarming scenario is the “large disruption” where worldwide oil supplies shrink by 6 to 8 million barrels per day. Under this circumstance, crude oil prices could surge as high as $157 per barrel. Such a spike in oil prices would have far-reaching consequences, affecting not only the energy sector but also industries reliant on oil, such as transportation, manufacturing, and agriculture.
It is essential for governments and global organizations to monitor the situation in the Middle East closely and take proactive measures to prevent any further escalation of conflicts. Diplomatic efforts should be prioritized to ensure stability in the region and safeguard the global oil supply.
Moreover, countries should also focus on diversifying their energy sources and promoting renewable energy solutions. Decreasing reliance on fossil fuels and investing in sustainable alternatives can help mitigate the impact of potential oil price shocks in the future.
In conclusion, the World Bank’s outlook on the Middle East conflict’s impact on crude oil prices is a cause for concern. While the current slump in prices is driven by other factors, an escalation in the conflict could quickly change the landscape. Governments and organizations must take necessary measures to prevent further disruptions and transition towards sustainable energy sources to safeguard against future oil price volatility.
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