World Bank warns that further escalation in Middle East could raise fertilizer prices
The World Bank on Monday warned of the possibility of an oil-price shock if Israel’s relentless assault on Gaza precipitates a wider conflict in the Middle East.
The institution said in its latest Commodity Markets Outlook report that while it expects oil prices to rise from $85 to $90 per barrel this quarter, if fighting spreads beyond the enclave they could potentially – in the worst-case scenario – hit $157 per barrel.
It pointed out that a shock of such magnitude would markedly increase the cost of producing and transporting fertilizers, which, in turn, would serve to further undermine global food security.
It added that a rise in the prices of natural gas and coal, or a disruption of nitrogenous fertilizer exports from regional producers, could also put considerable upward pressure on fertilizer prices.
The World Bank said that commodity markets have so far responded calmly to the latest round of violence in the region, which erupted following Hamas’ brutal incursion into Israel on October 7. It noted, however, that we have seen this relatively muted response because of the prevailing assumption that the war will not spread – an assumption that is looking increasingly insecure.
The institution’s report proceeded to outline three risk scenarios, and the impact each would have were it to come to pass.
It described, first, a ‘small disruption’ in oil output, equivalent to between 500,000 and two million barrels per day, and comparable to that engendered by the Libyan civil war in 2011; this, it said, would cause oil prices to rise to between $93 and $102 a barrel in the fourth quarter of the year.
It then considered a ‘medium disruption’ in oil output, or a decline of between three million and five million barrels per day, which would be comparable to that witnessed following the invasion of Iraq in 2003; under this scenario, it estimated, prices would reach between $109 and $121 per barrel.
Finally, it sketched a ‘large disruption’ scenario similar to the one induced by the 1973 Arab oil embargo. This, it said, would reduce global oil supply by six million to eight million barrels per day, which would cause oil prices to surge by up to 75% – to between $140 and $157 per barrel.
The World Bank’s deputy chief economist, Ayhan Kose, was quoted in an accompanying press release as saying that: ‘If a severe oil-price shock materializes, it would push up food-price inflation that has already been elevated in many developing countries. At the end of 2022, more than 700 million people . . . were undernourished. An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world.’
The World Bank stated that if the Israel-Palestine conflict does escalate, governments should avoid introducing trade restrictions such as export bans on food and fertilizer – as this would only exacerbate global food insecurity. It also urged countries to hasten their transition to renewable energies as a means of mitigating the effects of future oil-price shocks.