The World Bank has said oil prices are expected to average $90 a barrel in the current quarter as a result of the crisis in the Middle East.
The Bank’s latest Commodity Markets Outlook added that oil prices will decline to an average of $81 a barrel next year as global economic growth slows.
The report released on Monday in Washington DC shows that an escalation of the latest conflict in the Middle East could push global commodity markets into uncharted waters.
The Commodity Markets Outlook provides a preliminary assessment of the potential near-term implications of the conflict for commodity markets.
According to the report, overall commodity prices are projected to fall 4.1% next year.
“Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5% in 2024. Commodity prices are expected to stabilize in 2025,” it said.
The World Bank’s Chief Economist and Senior Vice President for Development Economics, Indermit Gill, said: “The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s—Russia’s war with Ukraine . That had disruptive effects on the global economy that persist to this day. Policymakers will need to be vigilant. If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades—not just from the war in Ukraine but also from the Middle East.”
The World Bank’s Deputy Chief Economist and Director of the Prospects Group, Ayhan Kose, added: “Higher oil prices, if sustained, inevitably mean higher food prices. If a severe oil-price shock materialises, it would push up food price inflation that has already been elevated in many developing countries. At the end of 2022, more than 700 million people—nearly a tenth of the global population—were undernourished. An escalation of the latest conflict would intensify food insecurity, not only within the region but also across the world.”
The report observed that the fact that the conflict has had only modest impacts on commodity prices may reflect the global economy’s improved ability to absorb oil price shocks.
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The report urged policymakers to remain alert in case of unforseen circumstances.
“Some commodities—gold in particular—are flashing a warning about the outlook. Gold prices have risen about 8% since the onset of the conflict. Gold prices have a unique relationship to geopolitical concerns: they rise in periods of conflict and uncertainty often signaling an erosion of investor confidence.
“If the conflict escalates, policymakers in developing countries will need to take steps to manage a potential increase in headline inflation. Given the risk of greater food insecurity, governments should avoid trade restrictions such as export bans on food and fertilizer. Such measures often intensify price volatility and heighten food insecurity. They should also refrain from introducing price controls and price subsidies in response to higher food and oil prices. A better option is to improve social safety nets, diversify food sources, and increase efficiency in food production and trade. In the longer term, all countries can bolster their energy security by accelerating the transition to renewable energy sources—which will mitigate the effects of oil-price shocks,” the report said.