The World Bank has issued a warning that the ongoing conflict between Israel and Hamas in the Middle East could have a significant impact on fuel prices worldwide, potentially affecting Nigerian consumers. While the bank’s baseline forecast predicts a decrease in overall commodity prices, particularly oil, there is a looming threat of rising prices if the situation escalates.
In its recent Commodity Markets Outlook, the World Bank highlighted that if the Israel-Hamas conflict intensifies, global oil supplies could be severely disrupted, leading to a worst-case scenario of oil prices soaring to between $140 and $157 per barrel. Even under less severe disruptions, prices could reach $102 to $121 per barrel. For context, current global oil demand stands at approximately 102 million barrels per day.
The conflict, which began with cross-border attacks from Gaza, has already claimed thousands of lives and taken numerous hostages, with the potential to spread beyond the immediate region. Energy analysts have raised concerns that global oil exports could be impacted if major crude producers like Iran become actively involved.
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As a result of these geopolitical tensions, European gas prices have surged to their highest levels in months, reflecting fears of pipeline disruptions affecting global supplies. However, oil markets have shown more resilience in the face of the conflict, with benchmark Brent prices falling by over 3 percent to around $87 a barrel after briefly exceeding $89 at the outbreak of hostilities. It’s important to note that in 2008, during the global financial crisis, crude oil reached a record price of $147 per barrel.
The World Bank pointed out that the current global economy is better equipped to handle a supply shock than in 1973 when oil prices quadrupled due to Arab members of OPEC cutting exports to the US and its allies in the wake of the Yom Kippur war. This is because the Middle East’s share of global oil exports has diminished over the past five decades, dropping from 37 percent in the 1970s to about 30 percent today.
Nonetheless, Ayhan Kose, the World Bank’s deputy chief economist, cautioned that the Middle East remains a crucial player in global oil markets. “When you think about oil prices, what happens in the Middle East does not stay in the Middle East. It has huge global repercussions.”
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The ongoing Israel-Hamas conflict adds another layer of uncertainty to commodity markets, which have not fully recovered from Russia’s full-scale invasion of Ukraine in 2022. The potential for a persistent increase in commodity prices driven by escalating conflict could result in another wave of inflation, necessitating central bank interventions. This, in turn, could have dire consequences for food security in Nigeria and other countries already grappling with rising levels of hunger. Increases in oil and gas prices would also drive up shipping and fertilizer costs, making agricultural commodities more expensive.
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The Israel-Hamas conflict has the potential to further impact fuel prices in Nigeria. The removal of fuel subsidies in Nigeria has already caused a significant increase in the cost of fuel, putting additional financial strain on the Nigerian population. If the conflict escalates, it could lead to a rise in global oil prices, which would likely translate into even higher fuel prices in Nigeria. This would exacerbate the economic challenges already faced by Nigerians due to the subsidy removal, making it even more difficult for people to afford essential goods and transportation.
The situation underscores the vulnerability of Nigeria’s fuel market to international events and the importance of addressing the country’s energy security and domestic production capabilities.
