The World Bank cautioned on Monday about the potential of soaring oil prices if the conflict between Israel and Hamas intensifies. Such an escalation could also lead to global food price hikes.

The recent findings in the World Bank’s Commodity Markets Outlook suggest that although the immediate effects on oil prices might remain contained if the situation remains as is, there’s a risk that prices could surge should tensions heighten. Current confrontations involving Hamas’s attacks on Israel and Israel’s counteroperations have ignited concerns of a broader Mideast clash.

This worry was amplified over the past weekend when Israeli forces advanced into Gaza, marking what Israeli Prime Minister Benjamin Netanyahu described as the “second stage” in the ongoing conflict. Meanwhile, Hamas representatives are seeking increased support from regional allies, notably including the Iran-supported Hezbollah group based in Lebanon.

In its report, the World Bank outlined three potential scenarios regarding the global oil supply:

1. Small disruption: If the conflict remains localized, oil prices could potentially decrease from their current $90 a barrel to around $81 a barrel in the upcoming year.
2. Medium disruption: Drawing parallels to the disturbances observed during the Iraq war, global oil supply could fall by 3 million to 5 million barrels per day out of 100 million barrels, pushing prices up by approximately 35%.
3. Large disruption: Reflecting the scale of the 1973 Arab oil embargo, the global oil supply might plummet by 6 million to 8 million barrels daily. This could result in oil price jumps ranging from 56% to 75%, with prices soaring between $140 to $157 per barrel.

Indermit Gill, the World Bank’s chief economist, emphasized the long-standing economic disturbances resulting from Russia’s invasion of Ukraine. He mentioned the unprecedented scenario of a “dual energy shock,” stemming both from the Ukraine situation and the potential exacerbation of the Mideast conflict.

Moreover, Ayhan Kose, deputy chief economist at the World Bank, alerted about the ripple effect of inflated oil prices on food costs. Such an oil shock would exacerbate food price inflation, especially in many developing nations, largely due to the implications of Russia’s actions in Ukraine.

Since the inception of the current conflict, oil prices have surged about 6%. Gold, typically viewed as a safe-haven asset during turbulent times, has also witnessed an approximate 8% appreciation, as noted by the World Bank.

Despite these observations, some experts remain doubtful about massive oil shortages impacting the US, considering its record-high oil production levels. Speaking at a recent Bloomberg event, Treasury Secretary Janet Yellen articulated that while current economic ramifications of the Israel-Hamas conflict seem limited on a global scale, a broader war could have significant global repercussions.

Fatih Birol, the Executive Director of the International Energy Agency, underscored the uncertainties in relying on oil and gas, especially in light of Russia’s invasion and the escalating Mideast tensions. He asserted that these energy sources cannot be viewed as entirely “safe and secure” for nations or consumers.

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