In a new report, Fitch Ratings has warned that the ongoing conflict in the Middle East could disrupt the oil supply, potentially impacting global economic growth in 2024. The agency outlined a scenario in which higher-than-expected oil prices could curtail world GDP growth by 0.4 percentage points next year. Fitch’s previous forecast had indicated that oil would average $75 per barrel in 2024 and $70 in 2025. However, due to the escalating conflict in the Middle East, those predictions have been upended. The agency’s new scenario assumes that oil prices will average $120/bbl in 2024 and $100/bbl in 2025.
The potential impact of higher oil prices on GDP growth is significant, particularly for the world’s major economies. Fitch’s report noted that the growth in the US, the Eurozone, and Japan could see a decline of 0.5 percentage points in 2024. Additionally, the report highlighted that the largest impacts among the main emerging market countries would likely be felt in South Africa and Turkey, while Russia and Brazil could experience a positive impact due to the important role of oil production in their economies.
In addition to the effects on GDP growth, higher oil prices are expected to lead to higher-than-anticipated inflation rates in 2024, followed by corrections in 2025. However, this inflation impact is projected to be short-lived and offset in part by lower-than-forecast inflation rates in 2025. Fitch also warned that an oil price shock related to the Middle East conflict could be accompanied by tighter financial conditions, lower business and consumer confidence, and corrections in financial markets.
The conflict in the Middle East began in October 2024, when the Palestinian armed group Hamas launched a surprise attack on Israel, resulting in over 1,200 deaths. Israel’s retaliatory bombardment of Gaza has led to over 10,000 deaths so far, according to Palestinian authorities. The potential of the conflict spreading to other countries in the region is seen as the biggest threat to the global economy.
Given these projections, it is clear that the ongoing conflict in the Middle East has the potential to significantly impact energy prices, global economic growth, and other financial markets. The ramifications of the conflict extend beyond the immediate human toll and have the potential to disrupt economies and financial systems around the world. As such, it is crucial for policy-makers, financial institutions, and businesses to monitor and prepare for the potential economic fallout from the situation in the Middle East.