A 1 percent cut in oil production due to a geopolitical shock typically leads to an increase in oil prices of more than 11 percent, said the World Bank, which forecasts that the average price of Brent crude will average $86 a barrel in 2026 unless there is a further escalation of war in the Middle East.
“At the onset of a significant geopolitical oil shock, a sharp increase in uncertainty about future supply and global economic conditions could lead to higher risk premiums, reflecting both efforts to secure physical inventories and speculative market reactions,” says the World Bank. Supply shocks also lead to “greater stockpiling in the medium term as a form of self-insurance.”
Current scenario
According to the International Development Bank’s baseline scenario, the most acute phase of trade disruptions in the Middle East will end in May and shipping volumes through the Strait of Hormuz will gradually return to pre-war levels by October.
Global oil supplies are projected to decline by 1.5 million bpd in 2026.
The slight decline in global oil consumption will be caused by higher prices and “active policy measures to curb consumption amid shortages in some countries,” the World Bank said, basing its forecast on data from the International Energy Agency.
The latest shock, which caused the largest ever loss of oil supplies, “exacerbates the trend of structurally weak oil consumption in recent years,” the bank said in a statement.
Oil inventories, including volumes stored on water platforms, will largely mitigate consumption through mid-2026, the bank said, with the global supply-demand balance expected to return to surplus later in the year as production recovers to 108.3 million bpd in the second half of 2026.
Risks remain
However, the World Bank said that “persistent geopolitical risks and the impact of a period of severe shocks and high uncertainty” will continue.
The bank forecasts that Brent crude oil prices could fall to $70 a barrel in 2027.
“Emergency oil inventories, newly available oil in transit and other sources such as biofuels could significantly mitigate for a few months the complete cessation of exports across the Strait,” the bank said in a statement.
According to the bank, the average price of Brent crude could average around $95 a barrel if there are delays in restoring transportation volumes through the Strait of Hormuz, without further significant damage to oil infrastructure. The price could rise to $115 a barrel if both additional damage to oil infrastructure and delays in removing impediments to trade occur, it said.
The organization also pointed to downside risks to the outlook, including faster-than-expected adoption of electric vehicles, further negative shocks to global economic growth and higher-than-expected supply, mainly in 2027.
The bank also said that shipping disruptions in the Strait of Hormuz may be resolved sooner than expected.
In general, oil supply disruptions caused by geopolitical factors tend to have a particularly destabilizing effect on commodity markets, according to the World Bank’s analysis of previous crises.
