"Thought the Ceiling Was High, but It's About to Break Through the Roof"..."Oil Prices Aren't the End" - World Bank Issues Stark Warning
"Oil Supply Shock from Hormuz Blockade"
"Fertilizer Price Surge Drives Food Prices Higher"
The World Bank (WB) projected on April 28 (local time) that energy prices would surge by 24% this year due to the aftermath of the Iran war, and that prices of major commodities would also rise by more than 16%.
In its April Commodity Markets Outlook released the same day, the WB stated that energy prices this year could reach their highest levels since the outbreak of the Ukraine war in 2022, due to the prolonged closure of the Strait of Hormuz. The WB noted, "Attacks on energy infrastructure and shipping disruptions in the Strait of Hormuz, which accounts for about 35% of global seaborne oil trade, have triggered the largest oil supply shock on record."
With the Strait of Hormuz blockade continuing for nearly two months, global crude oil supply has dropped by more than 10 million barrels per day, and by mid-April, Brent crude prices were more than 50% higher than at the beginning of the year. The WB forecasted, "The average price of Brent crude will soar from $69 per barrel last year to $86 per barrel this year." It added, "This forecast assumes that the most severe disruptions end in May and that maritime transport through the Strait of Hormuz gradually returns to pre-war levels by the end of the year."
The WB warned that if the Iran war is prolonged, it could drive up food prices following energy prices, resulting in a severe inflationary shock worldwide. Indermit Gill, Chief Economist of the WB, explained, "First, it hits the global economy through rising energy prices, then through higher food prices, and finally through elevated inflation," adding, "This will lead to higher interest rates and increase the burden of debt repayment."
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Following the rise in energy prices, the price of urea, a nitrogen-based fertilizer mainly produced from natural gas, has soared by 60% so far this year, and overall fertilizer prices are expected to rise by 31%. Analysts noted that a surge in fertilizer prices will immediately impact global food prices.
The WB stated, "Under the baseline scenario, inflation in developing countries is expected to average 5.1% in 2026," adding, "This is up from 4.7% last year and more than 1 percentage point higher than pre-war forecasts. If the war continues, inflation could soar to as high as 5.8%."
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