The World Bank (WB) has warned that the ongoing conflict between Israel and Hamas could lead to a dramatic surge in global oil prices exceeding $150 per barrel.
Such a scenario would represent uncharted territory in terms of oil prices. To put this in perspective, the previous highest recorded price per barrel, without adjusting for inflation, was $147 in 2008.
This assessment by the WB is crucial because it takes into account the economic risks associated with the conflict extending beyond the borders of Gaza.
A "large disruption" scenario similar to the Arab oil boycott of Western nations in 1973 is the basis for these concerns.
In such a scenario, oil supply shortages would become critical, driving up oil prices from the current level of around $90 to a range of $140 to $157 per barrel.
WB Chief Economist Indermit Gill underlined the importance of this situation considering the recent major shock to commodity markets caused by Russia's conflict with Ukraine.
The repercussions of this conflict continue to affect the global economy.
An escalation in the Middle East conflict would mean that the world is facing a dual energy shock for the first time in decades, stemming from both the Ukrainian crisis and the developments in the Middle East.
The potential impact is not limited to energy costs alone.
The global economy could face a broader crisis resulting in food price increases, leading to hundreds of millions of people experiencing hunger.
Higher oil prices, if sustained, often result in higher food prices. This would worsen the already elevated food price inflation in many developing countries.
By the end of 2022, over 700 million people, almost one-tenth of the global population, were undernourished.
An escalation of the current conflict would intensify food insecurity, impacting not only the region but also the entire world.
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