Middle East escalation could trigger oil price shock that fuels inflation, World Bank warns

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A general view of Isfahan Refinery, one of the largest refineries in Iran and is considered as the first refinery in the country in terms of diversity of petroleum products in Isfahan, Iran on November 08, 2023. The outbreak of a major conflict in the Middle East could trigger an energy shock that pushes oil prices above $100 a barrel, fuels inflation and results in higher interest rates for longer, the World Bank warned Thursday. Tensions in the Middle East reached a boiling point earlier this month as Israel and OPEC member Iran appeared on the brink of war, raising fears that crude oil supplies could be disrupted as a consequence. The governments in Jerusalem and Tehran appear to have decided against escalation after exchanging direct strikes on each other's territory for the first time. Oil prices have pulled back nearly 4% from recent highs as investors have discounted the probability of a wider war in the region. The World Bank, however, cautioned that the situation remains uncertain. "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," said World Bank Chief Economist Indermit Gill.