The current turmoil in the Middle East and North Africa has been associated with a $22/bbl increase in oil prices from $90/bbl in December 2010 to $112/bbl by late April 2011 (a 40% increase over the average price of $79.60/bbl in 2010).
In the World Bank’s latest baseline projections , oil prices are expected to gradually decline toward a long-run equilibrium price of about $80/bbl in constant 2011 dollar terms. This implies annual price levels of $107/bbl in 2011 drifting to $96.70/bbl by 2013.
But if current uncertainties persist or a major supply disruption occurs, especially involving larger oil exporters, oil prices could remain high or even rise further, with serious consequences for developing countries and global growth.
Simulations  suggest that a further $50/bbl rise in oil prices for one year (beginning in the second half of 2011, for example) could shave off 0.5 and 1.0 percentage points from global output in 2011 and 2012 (see Table 1).
The initial impact of an oil price shock mainly impacts countries through their terms of trade, but it will also raise inflation and interest rates, with the inflation impact (and monetary response) of developing countries likely to be much stronger due to the larger weight of fuel in the consumer basket and/or monetary policy credibility/inflation expectations not as well entrenched as in advanced economies.
Under this scenario, oil exporting countries will see a gain in real income as prices of merchandise exports rise. The income effect will be strongest where exports represent a large share of GDP and the export basket is less diversified (for example in Angola and Nigeria). Oil exporting countries in the Sub-Sahara Africa region and the Middle East and North Africa region could see GDP gains of around 6.6% and 2.4% in 2012, respectively. The oil-importers in Europe and Central Asia will benefit from strong Russian imports.
On the flipside, the economies that will be most negatively affected are the oil-importing countries in the Middle East and North Africa region and the East Asia and the Pacific region, which could see output fall by 2.4% and 1.9% in 2012 respectively, reflecting both the direct effect of higher oil prices on incomes in these regions as well as their greater reliance on exports to other negatively affected oil-importing regions.
GDP declines in oil importers reflect real income declines as the cost of oil and related goods and services rise. This will raise inflation and interest rates, which lowers lower demand, reduces competitiveness, and as a result, output declines. Countries with close economic ties to oil exporters (for example those in Europe and Central Asia) tend to be affected less as they will benefit from higher export demand from oil exporters.
In terms of external balances, current account balances as a share of GDP are expected to rise by up to 6.2% of GDP in oil-exporting Sub Saharan Africa, and by about half that much in the Middle East and North Africa. In East Asia and the Pacific, external balances may decline by about 1% of GDP.
Under the same scenario, high-income oil exporting countries will see a fall in output, largely driven by adverse GDP impacts in Canada and the UK, whose non-oil exports are negatively affected by slowing global demand. Excluding these two countries, the impact on the remaining advanced oil exporters is positive. Also in East Asia and Pacific, the outcome for oil exporters is negative, due to Malaysian non-oil exports being adversely affected by falling global demand (once again, excluding Malaysia, the net GDP impact is positive).