WB chief economist Indermit Gill said that the war situation in the Gaza Strip and Russia-Ukraine tension are the biggest shocks to commodity markets since the 1970s, creating a negative impact on the global economy. According to the WB Commodity Markets Outlook report, oil prices have increased by 6% since the outbreak of the conflict in the Gaza Strip, while prices of agricultural commodities, most metals and other commodities have remained virtually unchanged. Based on the history of regional conflicts since the 1970s, the WB report forecasts three scenarios, with increasing severity.
In an optimistic scenario with a small disruption scenario, equivalent to the reduction in oil output seen during the civil war in Libya in 2011, oil prices could increase by 3%-13%, to 93-102 USD per barrel. With a medium disruption scenario, roughly equivalent to the Iraq war in 2003, oil prices will rise to 109-121 USD per barrel. In the worst case, oil prices could peak at 140-157 USD per barrel.
Recently, oil price increases have been restrained, partly due to higher US oil reserves and gloomy European economic prospects. According to the US Energy Information Administration (EIA), the country’s crude oil reserves expanded by 1.4 million barrels in the most recent week, to 421.1 million barrels. Bob Yawger, energy futures strategist at Mizuho Bank, said that data from the EIA could pull oil prices down.
In addition, data from the European Central Bank (ECB) shows that lending activities of banks across the Eurozone almost came to a standstill last month. This is the latest evidence that the Eurozone may be approaching an economic recession, affecting oil demand.
Meanwhile, the Organisation of the Petroleum Exporting Countries (OPEC) is not planning to hold an extraordinary meeting or take any urgent action, after Iran called on members of the Organization of Islamic Cooperation (OIC) to impose an oil embargo and other sanctions on Israel. It could create a strong impact on oil prices. Secretary General of the Gulf Cooperation Council (GCC) Jasem al-Budaiwi stated, that the GCC is committed to ensuring energy security and not using oil as a “weapon”.
This makes it difficult to repeat the scenario in 1973, when Arab oil producers, led by Saudi Arabia, imposed an oil ban on Western countries that supported Israel in the war against Egypt. At that time, petrol prices soared but it also led to the development of other oil production facilities outside the Middle East, such as the North Sea and the promotion of alternative energies.
At that time, Western countries were the main customers buying Arab countries’ oil, but now, OPEC’s oil is mainly imported by Asian countries. Explaining the forecast of no oil ban with Israel, an OPEC source said that the current geopolitical situation is different from 50 years ago. Today’s oil-producing countries can play a leading role in stabilising global markets, by increasing output and investing in boosting production.
World oil prices in the trading session on October 30 fell, closing at 87.45 USD per barrel, due to fears of a wider Middle East conflict eased. However, the risk of the conflict can still push oil prices high again at any time. According to experts, oil prices can fluctuate and the future of the “black gold” market remains uncertain. If the oil price scenario becomes a reality, food price inflation, which has surged sharply in many developing countries, will continue to go up and many countries will face a new inflation trend. This will “deal a blow” to the global economic outlook.
