By Ginika Igboke
The World Bank has warned that disruptions in the Strait of Hormuz and escalating conflict in the Middle East are causing a major global oil supply shock that is beginning to weaken energy demand around the world.
In a May 7 analysis, the World Bank said global oil demand declined by 0.8 million barrels per day year-over-year in March and is expected to fall by another 1.5 million barrels per day during the second quarter of 2026.
“Oil demand destruction is emerging,” the institution said, pointing to rising prices, trade disruptions, and slowing economic activity across advanced economies, Asia, and the Middle East.
The warning came as Brent crude prices surged following what the World Bank described as the “near-total disruption” of shipping through the Strait of Hormuz, one of the world’s most critical energy transit routes.
Roughly one-quarter of global seaborne crude oil trade moves through the narrow waterway.
By the end of March, Brent crude prices had climbed approximately 65 percent, or $46 per barrel, marking what the World Bank described as the largest monthly increase ever recorded.
Although prices later eased after a temporary ceasefire announcement, markets remained highly volatile due to uncertainty surrounding negotiations involving Iran and the United States.
Historic Oil Supply Disruptions
The World Bank projected that global oil production would decline by 6.9 million barrels per day, or 6.6 percent year-over-year, during the second quarter of 2026. The institution said this would represent the sharpest quarterly production decline since the COVID-19 pandemic.
The United States is expected to contribute most of the non-OPEC+ production growth, with output forecast to increase by roughly 500,000 barrels per day, partially offsetting supply disruptions in the Middle East.
Despite emergency reserve releases and limited production increases from other oil producers, the report projected that global oil markets would still face a supply deficit of approximately 3.7 million barrels per day during the second quarter.
“Even if disruptions ease later this year, oil markets are expected to stay tight in the near future amid ongoing geopolitical risks, uncertain regional flows, and dislocation of shipping assets,” the World Bank stated.
In a separate analysis also published on May 7, the institution described the conflict as creating “unprecedented commodity supply disruptions,” adding that the shutdown of shipping through the Strait of Hormuz had triggered “the largest energy supply shock on record.”
Before the conflict intensified, vessels passing through the strait accounted for nearly 35 percent of global seaborne crude oil trade, 20 percent of refined petroleum product trade, and approximately 20 percent of liquefied natural gas shipments worldwide.
Rising Food and Commodity Costs
The World Bank warned that fertilizer prices are expected to rise by more than 30 percent in 2026, driven largely by a projected 60 percent increase in urea prices as disruptions to liquefied natural gas and fertilizer feedstocks push production costs higher.
The institution cautioned that rising fertilizer and agricultural input costs could have severe consequences for global food security.
“If greater disruptions drive fertilizer and other input costs even higher, knock-on impacts on food prices could push tens of millions more people into acute food insecurity globally,” the report stated.
The World Bank also projected that base metals prices would rise by 19 percent this year, while precious metals prices were expected to increase by 42 percent amid ongoing geopolitical uncertainty.
Gold and silver prices are forecast to remain near historic highs and well above their pre-2020 averages.
Inflation and Economic Growth Pressures
According to the World Bank, higher energy costs are weakening global economic growth prospects while increasing inflationary pressures, particularly across emerging markets and developing economies.
The institution revised its 2026 growth forecast for emerging market and developing economies downward to 3.6 percent, representing a reduction of 0.4 percentage points from its January projection.
Commodity-exporting developing economies are expected to grow by only 2.4 percent due to direct exposure to the conflict and continued disruptions in global energy trade.
Meanwhile, inflation projections for emerging markets were revised upward from 4.1 percent to 5.1 percent for the year, reflecting the impact of surging energy and commodity prices.
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