The World Bank said disruptions tied to the Iran conflict and instability around the Strait of Hormuz are fueling what it described as the largest energy supply shock on record, with falling oil demand, shrinking output, rising fertilizer costs, and worsening inflation pressures worldwide.
By yourNEWS Media Newsroom
The World Bank warned in a newly released report that the ongoing conflict involving Iran and disruptions affecting energy shipments through the Strait of Hormuz are creating a global oil supply shock severe enough to reduce worldwide demand and slow economic growth across developing economies.
In its May 7 report, the institution stated that “oil demand destruction is emerging” as rising prices and supply instability spread throughout global markets.
According to the report, global oil demand declined by approximately 800,000 barrels per day in March compared to the previous year. The World Bank projected an even steeper reduction during the second quarter of 2026, forecasting an additional drop of 1.5 million barrels per day.
The Strait of Hormuz remains one of the world’s most critical energy corridors, with roughly 20% of global oil and natural gas exports typically passing through the waterway. The report linked ongoing disruptions in the region to escalating volatility in global energy markets.
Crude oil prices surged approximately 65% during the first month of the Iran conflict, increasing by roughly $46 per barrel and marking the largest monthly price increase on record, according to the World Bank analysis.
The institution projected that global oil production will fall by 6.9 million barrels per day during the second quarter of 2026, representing a year-over-year decline of 6.6%. The report stated that this would constitute the largest quarterly drop in oil output since the COVID-19 pandemic.
The World Bank further warned that oil markets are expected to face a deficit of approximately 3.7 million barrels per day.
“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 report stated.
The institution forecast that crude oil prices would average approximately $86 per barrel during the year before potentially falling toward $70 per barrel if supply conditions stabilize. However, the report warned that continued conflict or prolonged supply interruptions could drive average prices into a range between $95 and $115 per barrel.
The effects of the energy disruption are also expected to spread into agriculture and global food supply chains. The World Bank projected fertilizer prices will rise by approximately 30% this year, driven largely by a 60% increase in urea costs.
“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.
Economic growth forecasts for emerging markets and developing economies were revised downward as part of the updated outlook. The World Bank reduced its growth projection by 0.4 percentage points to 3.6% compared to its January forecast.
At the same time, inflation projections were revised higher. The institution now expects inflation to reach 5.1% this year, up from a previous estimate of 4.1%.
The report described the current environment as a combination of energy supply disruptions, shipping dislocation, elevated commodity prices, and weakening economic activity that is placing additional strain on both developed and developing economies.
Original article
Comments