Grim World Bank Forecasts: War in Iran to Spur Largest Energy Price Growth Since 2022

(Patria) - Energy prices will rise by 24 percent this year due to the war in Iran and the blockade of the Strait of Hormuz, representing a historic blow to global markets, predicts the World Bank in its latest "Commodity Markets Outlook" report released today.

The expected increase is the largest surge in energy prices since Russia's invasion of Ukraine in 2022 and threatens to entrench high inflation and halt economic progress in developing countries, writes Euronews.

Global commodity markets are going through the most volatile period in four years. Energy and fertilizer prices are expected to drive a general increase in commodity costs by 16 percent during 2026.

Regional instability has already caused the largest disruption to oil supply ever recorded, with a drop in global production exceeding 10 million barrels per day.

Although some prices have stabilized from their initial peaks, the study shows that the long-term effects of attacks on infrastructure and traffic bottlenecks in the Strait of Hormuz will keep energy costs elevated in the foreseeable future.

Analysts believe that the current unrest has reversed the downward trend in commodity prices recorded last year, creating an environment of stagflation and making it difficult for central banks to manage interest rates.

Ayhan Kose, Deputy Chief Economist of the World Bank, says governments must resist the temptation of broad, untargeted fiscal support that can distort markets.

- Instead, they should focus on temporary assistance to the most vulnerable households to navigate the coming months of economic uncertainty - Kose points out.

The main driver of current market instability is the unprecedented disruption of maritime routes in the Middle East.

The Strait of Hormuz, a key passage through which approximately 20 percent of the world's crude oil maritime trade passes, has been practically halted during the war.

The World Bank predicts that the average price of Brent crude oil during 2026 will be $86 per barrel, a sharp increase from the average of $69 recorded in 2025.

This forecast is based on the assumption that the most serious disruptions will begin to subside by May, and maritime traffic volume will gradually return to pre-war levels by the end of the year.

At the time of writing, US benchmark oil WTI is trading at over $102 per barrel, while Brent, the international standard, has crossed $110 for the first time in three weeks.

The United Arab Emirates announced today that it is leaving OPEC and OPEC+ as of May 1.

The UAE Minister of Energy cited the restructuring of the country's energy strategy "to meet changing needs" as the reason and promised a "gradual increase in oil production."

It remains to be seen whether the additional supply will help lower prices or if less coordination among major suppliers will actually be detrimental amid the crisis.

The World Bank warns that price pressures will only intensify if the conflict prolongs or expands to more regional actors.

Even under the current baseline forecast, the shock has already sent significant ripples through other energy sectors.

The study shows that oil market instability has direct consequences on natural gas and liquefied natural gas (LNG) prices as countries compete to secure alternative energy sources.

The European Union has already spent over 27 billion euros on additional fossil fuel import costs since the start of the war in Iran, and the International Energy Agency (IEA) already calls this situation the biggest threat to energy security in history.

Increased fuel costs are expected to slow global growth, with serious consequences for job creation and industrial development.

This month, the IMF lowered its global growth forecast for 2026 to 3.1%, a decrease of 0.2 percentage points, and revised its estimate for the eurozone from 1.4% to 1.1%.

The war has also raised the IMF's global inflation expectations to 4.4%, and if energy instability continues into 2027, the fund warns of a "severe scenario" in which global growth could fall to 2%.

A special segment of the World Bank report highlights the disproportionate impact of geopolitical risk on market stability.

The analysis shows that oil price volatility during periods of conflict is approximately twice as high as in calmer times.

Specifically, the study shows that a 1 percent geopolitically caused drop in global oil production typically raises prices by an average of 11.5 percent.

These shocks have a strong spillover effect, with the impact on other commodity markets being about 50 percent greater than under normal conditions.

According to the report, a 10 percent increase in oil prices caused by a geopolitical shock leads to a 7 percent rise in natural gas prices and an over 5 percent increase in fertilizer prices approximately one year later.

These delayed effects mean that even if the Middle East conflict is resolved soon, the global economy will likely continue to feel inflationary pressure well into next year.