However, if international tensions (or internal tensions within an important oil exporter) intensify and a serious disruption to global supply ensues, prices could rise much higher, with potentially significant impacts on output.
In particular, a prolonged blockage of the Strait of Hormuz, although a low probability event, could send oil prices soaring. Some 17 mb/d of crude and products transit the strait (an average 14 crude tankers daily, with another 14 returning empty). Although alternative routes for some Middle-East oil could be found and any disruption is likely to be temporary (see Commodity Annex for more details), a net 13 mb/d or 15 percent of global demand could be disrupted for several months and would likely be only partially offset by release of strategic reserves.
Evaluating what price oil might reach under such a scenario is highly uncertain, but economic impacts would be serious – even if peak prices are short-lived and adequate supply is restored. World Bank Group simulations suggest that a sustained $50 increase in oil prices could reduce global GDP by around 1.3 percent in oil-importing countries (figure 18). A more detailed discussion on the impact of higher oil prices is presented in box 6.
Figure 18. A major oil shock should cut sharply into global growth