The analysis indicate that the shock will have serious implications for job creation and development. Attacks on energy infrastructure and shipping disruptions in the Strait of Hormuz, which handles about 35 per cent of global seaborne crude oil trade, have triggered the largest oil supply shock on record, with an initial reduction in global oil supply of about 10 million barrels per day, the World Bank Group said in a press release.
Energy prices are set to rise 24 per cent in 2026, driven by Middle East conflict disrupting oil supply, according to the World Bank.
Brent crude may average $86 a barrel, with risks of $115 if disruptions persist.
Commodity prices could climb 16 per cent overall, fuelling inflation and slowing growth.
Developing economies face weaker expansion, with fuel and debt pressures worsening poverty risks.
Even after moderating from their recent peak, Brent oil prices remained more than 50 per cent higher in mid-April than they were at the start of the year. Brent oil is forecast to average $86 a barrel in 2026, up sharply from $69 a barrel in 2025. These forecasts assume that the most acute disruptions end in May and that shipping through the Strait of Hormuz gradually returns to pre-war levels by late 2026.
“The war is hitting the global economy in cumulative waves: first through higher energy prices, then higher food prices, and finally, higher inflation, which will push up interest rates and make debt even more expensive,” said Indermit Gill, the World Bank Group’s chief economist and senior vice president for Development Economics. “The poorest people, who spend the highest share of their income on food and fuels, will be hit the hardest, as will developing economies already struggling under heavy debt burdens. All of this is a reminder of a stark truth: war is development in reverse.”
The outlook stated that developing economies are expected to grow by 3.6 per cent in 2026, a downward revision of 0.4 percentage point since January. Economies directly impacted by conflict will be hardest hit, and 70 per cent of commodity importers and more than 60 per cent of commodity exporters worldwide could see weaker growth than was projected in January.
Commodity prices could rise even higher if hostilities escalate or supply disruptions from the war last longer than projected. Brent oil prices could average as high as $115 a barrel in 2026 in a scenario where critical oil and gas facilities suffer more damage and export volumes are slow to recover. This in turn would have ripple effects on prices for fertiliser and alternative energy sources such as biofuels. Under this scenario, inflation in developing economies could rise to 5.8 per cent this year, a level exceeded only in 2022 over the past decade.
“The succession of shocks over the decade has sharply reduced the fiscal space available to respond to the current historic energy supply crisis,” said Ayhan Kose, the World Bank’s deputy chief economist and director of the Prospects Group. “Governments must resist the temptation of broad, untargeted fiscal support measures that could distort markets and erode fiscal buffers. Instead, they should focus on rapid, temporary support targeted to the most vulnerable households.”
The Commodity Markets Outlook report said that oil-price volatility during periods of rising geopolitical risk is roughly twice as high as during calmer periods, with a geopolitically driven 1 per cent decline in oil production pushing prices up by an average of 11.5 per cent.
Critically, these effects spill over into other key commodity markets, with an impact roughly 50 per cent larger than under normal market conditions.
According to the report, a 10 per cent oil price increase triggered by a geopolitical supply shock leads to natural gas price increases peaking at about 7 per cent and fertiliser price increases peaking at over 5 per cent. These peaks typically occur about a year after the initial oil price shock, with adverse consequences for food security and poverty reduction.
Fibre2Fashion News Desk (SG)
