Oil could pass $100 a barrel if Middle East crisis worsens, says World Bank

A serious escalation of tensions in the Middle East would push the price of oil above $100 (£80) a barrel and reverse the recent downward trend in global inflation, the World Bank has said.

The Washington-based institution said the recent fall in commodity prices had been levelling off even before the recent missile strikes by Iran and Israel – making interest rate decisions for central banks tougher.

But it said its forecast that crude prices would average $84 a barrel this year would prove too optimistic in the event of the crisis worsening.

Fears of a full-scale war in the Middle East have already led to a rise in oil prices and higher fuel costs for motorists. A barrel of Brent crude is trading at $87, while the average price of a litre of unleaded petrol in Britain has edged above £1.50.

The bank’s commodity markets report said: “A moderate conflictrelated supply disruption could raise the average Brent price this year to $92 a barrel. A more severe disruption could see oil prices surpass $100 a barrel, raising global inflation in 2024 by nearly 1 percentage point.”

Between mid-2022 and mid2023, global commodity prices fell by nearly 40% and were the driving force behind a drop in global inflation of almost 2 percentage points. Since mid-2023, the World Bank said its index of commodity prices had remained essentially unchanged.

Financial markets have already pared back expectations about interest rate cuts this year in response to stickier than expected inflation.

Indermit Gill, the World Bank chief economist, said: “Global inflation remains undefeated. A key force for disinflation – falling commodity prices – has essentially hit a wall.

“That means interest rates could remain higher than currently expected this year and next. The world is at a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years.”

The World Bank said an escalation of the Middle East conflict could also drive up prices of gas, fertilisers and food. A fifth of liquefied natural gas (LNG) exports pass through the strait of Hormuz and, if the supply were interrupted, prices of fertilisers reliant on LNG in their production would rise substantially, with the likely effect of driving up food prices.