Oil prices have been high throughout the year primarily because of the war in Ukraine, which has disrupted supply, and OPEC+ members who have concomitantly agreed to cut oil production in April, and continue to maintain this cut. The Israel-Hamas War, which started almost a month ago, has aggravated the oil supply disruption. This is because the Middle East is a major oil producer.
According to the World Bank, record high oil prices could be on the horizon in the event of a conflagration of the ongoing Israel-Hamas War. Should the conflict expand beyond the borders of the Gaza Strip to a repeat of the Arab oil embargo in 1973, oil prices could surge to $157 per barrel, the World Bank noted in its latest Commodity markets Outlook report. The highest price of oil on record was in July 2008, when Brent traded as high as $147.5 per barrel, according to data from LSEG.
Other analysts have also warned of the potential for oil prices to reach $150 or higher if the war in Israel continues. For example, Bank of America has said that oil prices could spike to $150 or even $250 if the conflict escalates.
There are a number of factors that could contribute to oil prices reaching $150 a barrel if the war in Israel continues. One factor is that a regional conflict could damage oil infrastructure in the Middle East, which would reduce global oil production. Another factor is that a conflict could lead to uncertainty in the oil market, which could cause traders to bid up oil prices.
Israel and its neighbors are major oil producers, and a conflict in the region could disrupt global oil supplies. For example, the Strait of Hormuz, through which a fifth of the world's oil passes, is located between Iran and Oman. The extension of conflict in the region could lead to the closure of the strait, which would accentuate the disruption to global oil supplies.
The war could also lead to increased demand for oil. For example, countries may stockpile oil in anticipation of supply disruptions, or they may need to use more oil to power their militaries.
The war could also lead to increased risk premiums in the oil market. Risk premiums are a charge that traders add to the price of oil to compensate for the risk of supply disruptions. When there is a lot of uncertainty in the oil market, risk premiums tend to rise. And that increases speculation about prices and trends. Speculators influence the price of oil as their speculations drive up the price.
The impact of oil prices reaching $150 a barrel would be significant. It would likely lead to higher inflation and slower economic growth around the world. It would also make it more expensive to transport goods and produce food, which could lead to higher prices for consumers.
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