The World Bank (WB) expects the global oil price to fall to an average of $81 per barrel in 2024, but warns that an escalation of the conflict in the Middle East could significantly increase the price of crude oil, Reuters and Agerpres reported. .

The latest Commodity Markets Outlook report released Monday by the international financial institution showed that the price of oil has risen only 6% since the start of the war between Israel and Hamas, while prices for agricultural products, most metals and other raw materials “barely changed”.

The report identifies three risk scenarios based on historical episodes of conflict in the region since the 1970s, with increasing severity and consequences.

A “small disruption scenario” equivalent to the 2011 cut in oil production seen during the Libyan civil war of around 500,000-2,000,000 barrels per day (bpd) would push oil prices from $93 to $102 per barrel in the fourth quarter of 2023.

A “moderate disruption scenario” — equivalent to the 2003 Iraq war — would cut global oil supplies by 3-5 million barrels per day, pushing oil prices to between $109 and $121 a barrel.

The most pessimistic scenario regarding the rise in oil prices

A “mass disruption scenario”—equivalent to the impact of the 1973 Arab oil embargo—would reduce global oil supplies by 6-8 million barrels per day.

Initially, under such a scenario, the price of oil would reach 140-157 dollars per barrel.

“Higher oil prices, if they persist, will inevitably lead to higher food prices. If a major oil price shock materializes, food prices, which are already high in many developing countries, will suffer,” said Ayhan Kose, deputy chief economist at the World Bank.

China’s oil demand was surprisingly resilient given the turmoil in the housing sector, recording 12% growth in the first nine months of 2023 compared to the same period in 2022, according to a World Bank report.

Russia’s oil production and exports have been relatively stable this year, despite a Western embargo on Russian crude oil. Russian exports to the EU, US, UK and other Western countries fell by 53 percentage points (pp) between 2021 and 2023, but this was largely offset by increased exports to China, India and Turkey, an increase of 40 pp .p.

If the war between Israel and Hamas escalates, the authorities of developing countries will have to take measures to control the possible increase in inflation. Governments should also avoid trade restrictions, such as bans on food and fertilizer exports, as they can often increase price volatility and worsen food security, the World Bank warns.

Oil prices fell in Asian markets on Monday morning after Israel’s ground offensive in the Gaza Strip failed to prompt a significant military response from Iran and its allies, allaying concerns about a possible cutoff to regional crude supplies.

The price of oil fell at the beginning of the week

Brent crude, the global benchmark, fell below $90 a barrel on Monday after rising nearly 3% on Friday, while West Texas Intermediate fell to nearly $84 a barrel.

Even as Israeli troops and tanks entered northern Gaza, Israeli authorities announced a gradual approach, allaying fears that the massive incursion would lead to a regional escalation.

“The last few days have shown that this armed conflict remains confined to Israel and the Gaza Strip, and crude oil appears overvalued from this perspective,” said Vandana Hari, founder of consulting firm Vanda Insights.

According to him, oil prices “may continue to fall until the next risky event.” The global oil market has been disrupted by the conflict in Gaza, given that there is potential for it to expand beyond the Gaza Strip and Israel, threatening global supplies.

The Middle East accounts for a third of the world’s oil supplies, and there are fears that an escalation of the war could lead to attacks on oil tankers, threats to the straits and cuts to Iran’s oil exports.