World Bank Warns: Middle East Conflict Could Trigger Energy Shock and Inflation Crisis with Oil Prices at $102/barrel

The potential outbreak of major conflict in the Middle East could cause oil prices to surge above $100 per barrel and result in higher interest rates for longer periods due to an energy shock, as warned by the World Bank. The recent escalation between Israel and Iran raised fears that crude oil supplies might be disrupted, but both countries have avoided further conflict so far. However, the situation remains uncertain according to Indermit Gill, Chief Economist at the World Bank. If a supply disruption of 3 million barrels per day results from any war in the region involving one or more Middle Eastern producers, oil prices could average $102 a barrel. The potential impact would lead almost entirely to an undefeated inflation crisis since global inflation has cooled by only two percent between 2022 and 2023 due largely to commodity price declines of nearly forty percent over the same period. Commodity prices have now plateaued, with modest declines projected this year and in 2025 according to World Bank’s latest report on commodities markets outlook. The ongoing conflict between Israel and Iran presents upside pricing risks while a decision by OPEC+ to unwind its production cuts from the second half of this year could see oil prices fall to an average $81 per barrel, as projected by the World Bank.