WASHINGTON: The war between Israel and Hamas could trigger price shocks for raw materials such as oil and agriculture products if the conflict escalates across the Middle East, the World Bank warned in a report on Monday (Oct 30).
Oil has already risen 6 per cent since the latest round of fighting, sparked when Hamas militants from Gaza stormed southern Israel and killed more than 1,400 people, mostly civilians, and seized nearly 240 hostages, according to Israeli officials.
Israel has responded with an unrelenting bombardment of Gaza, which the Hamas-run health ministry says has killed more than 8,000 people, nearly half of them children.
The conflict between Israel and Hamas comes as Russia’s war in Ukraine has already put pressure on markets, with that war being “the biggest shock to commodity markets since the 1970s”, warned World Bank chief economist Indermit Gill.
“That had disruptive effects on the global economy that persist to this day,” Gill said in a statement.
“Policymakers will need to be vigilant. If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades” from both the war in Ukraine and conflict in the Middle East, he said.
Many potential price hikes will depend on what happens to world oil prices and exports, the World Bank said.
In an optimistic scenario, oil could rise 3 to 13 per cent, to between US$93 and US$102 per barrel.
A median scenario envisages prices rising up to US$121, while a worst-case scenario would see oil reach a peak of between US$140 and US$157 – potentially exceeding all-time highs not seen since 2008.
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World oil prices sank on Monday, however, as traders hoped that a region-wide conflict could still be avoided as Israel said its forces killed dozens of Hamas militants in clashes in Gaza.
European equities rose as the sliding oil market lifted hopes that the United States Federal Reserve and the Bank of England will opt for no-change when they announce their latest interest-rate decisions on Wednesday and Thursday respectively.
Crude futures pared Friday’s near 3 per cent gains as Israel’s military continued air and ground operations in Gaza.
“HIGHLY VOLATILE”
“Oil prices are coming under pressure … despite an intensification of the Israel-Hamas war,” said Tickmill analyst James Harte.
Despite Israel stepping up its advances into Gaza, “for now markets appear to be looking beyond the reports on the view that the conflict looks likely to remain contained”.
“Although this view is keeping oil prices lower for now, the situation remains highly volatile and any sign of the conflict spilling over into a wider Middle East conflict should see oil prices firmly bid,” said Harte.