How High Oil Prices Impact Global Trade Under Middle East Conflict: This Is How WTO Calculates It | Global Trade Watch

The latest World Trade Organization (WTO) “Global Trade Outlook and Statistics” report suggests that the Middle East conflict could impact global trade through multiple channels: not only leading to higher oil prices and slowing global GDP growth, but also causing fertilizer shortages and rising costs, which threaten food security in vulnerable economies.

WTO Chief Economist Robert Staiger explained the estimation logic at the report release: if high energy prices persist for the rest of the year, global GDP growth is expected to be revised down from the baseline forecast of 2.8% in 2026 to 2.5%, then rebound in 2027.

“Additionally, we forecast this factor will also lower the baseline forecast for merchandise trade volume growth in 2026 by 0.5 percentage points to 1.4%. It will then rebound to 2.8% in 2027, as our model assumes oil prices will ease by then,” he said.

He also noted that the WTO’s forecasts include an “alternative scenario” that specifically considers the potential impact of the Middle East conflict on energy prices, assuming the conflict keeps energy prices high throughout the year. The specific assumptions are that crude oil prices will stay at $90 per barrel, and liquefied natural gas (LNG) prices at $16 per million British thermal units, reflecting actual market prices as of March 10 this year.

Are these forecasts too conservative?

Staiger mentioned that in making these predictions, the WTO faced another unexpected shock (the Middle East conflict). The WTO released a “baseline” forecast that does not explicitly incorporate the impact of the conflict; however, it also provided an “adjusted” forecast that aims to reflect the full impact of this shock as comprehensively as possible.

In short, under the baseline scenario, the WTO predicts global merchandise trade growth of 1.9% in 2026, while the impact-adjusted forecast is 1.4%.

The trend for global commercial services trade shows a similar pattern, but with smaller annual fluctuations, as service trade tends to be more stable than merchandise trade. He explained, “In our baseline scenario, we forecast global service trade growth of 4.8% in 2026, rising to 5.1% in 2027. If energy prices remain high throughout the rest of this year due to the Middle East conflict, we expect the growth rate of global service trade to fall to 4.1% in 2026, then rebound to 5.2% in 2027.”

However, a common question is that crude oil prices have already surpassed $100. On the day of the briefing, Brent crude oil surged to $116 per barrel.

“In this situation, some might ask whether our forecasts are already too conservative or even too low,” Staiger said. “I want to emphasize that energy prices are always volatile on any given day. For us, short-term daily fluctuations are not the key concern.”

He explained that the WTO’s economists conducted robustness tests on the “average level” of crude oil prices for 2026.

“These tests explore how our forecasts would change if assumptions about oil and gas prices shift—for example, if prices do not stay constant throughout the year but spike for a few months and then fall back. We believe our forecasts remain robust under such scenarios,” Staiger said. “If energy prices spike more sharply and stay high for a longer period, our current assumptions may no longer hold. We may need to reassess or update our forecasts in the coming months.”

“But for now, we believe our assumptions are appropriate and reassuring,” he added.

Persistently high oil prices could hurt European trade

According to the WTO’s models, if energy prices remain high, Europe’s merchandise exports could shrink by 0.6% this year, compared to a baseline growth of 0.5%.

Europe’s industrial sector is particularly sensitive to high energy prices due to its heavy reliance on natural gas imports. During the previous energy crisis triggered by the Russia-Ukraine conflict in 2022, Europe’s energy-intensive industries had to significantly cut capacity.

A senior commodities researcher told reporters that in a high oil price scenario, Europe faces three impacts: first, high oil prices are a global phenomenon; second, high gas prices are common to Europe and Asia; third, high electricity prices are mainly a European issue.

He explained that in Europe, about 60% of electricity prices are determined by natural gas prices. In most Asian countries, electricity prices are primarily driven by coal and, in some cases, solar power, with natural gas playing a smaller role. In simple terms, Asia is affected by two of these three channels, the US by one, and Europe by all three.

A recent report from Bloomberg Economics estimates that about one-third of current oil prices are due to the conflict. If the conflict continues at a lower intensity, with short-term disruptions in the Strait of Hormuz, the risk of sustained high prices could keep oil around $110 per barrel until Q2, then fall back to $80. This would result in about a 0.7 percentage point increase in US inflation, and nearly a 1 percentage point increase in inflation in the Eurozone and the UK, reflecting their higher dependence on natural gas.

Meanwhile, Europe’s liquefied natural gas (LNG) supply disruptions have pushed natural gas prices from around €30 per megawatt-hour to about €60, still well below the peak of over €300 during 2022.

According to the WTO’s models, in scenarios with high energy prices, net fuel-importing regions like Asia and Europe will see the largest downward revisions in merchandise import growth compared to the baseline; while fuel-exporting economies with remaining export capacity are generally expected to see higher income and stronger import growth.

The WTO also warned that the Middle East conflict threatens key global shipping corridors. Shipping traffic through the Strait of Hormuz has plummeted from about 138 ships per day to nearly zero. The region accounts for 7.4% of global transport service exports and is a critical hub connecting Europe, Asia, and Africa; however, the disruption has led to over 40,000 flight cancellations and increased transportation and insurance costs.

The WTO stated that while a short-term conflict might cause only temporary disruptions, prolonged crises could lead to structural increases in fuel and transportation costs, shrinking transshipment activities, and shifting global travel and trade patterns to alternative routes.

(This article is from First Financial)