According to the World Bank’s Commodity Markets Outlook Report, a 4.1 percent decline in commodity prices is expected for 2024. The report assesses the potential short-term repercussions of the conflict on commodity markets, particularly focusing on the Middle East economies, primarily in terms of oil prices, inflation, and food security.
The report delineates three scenarios with respect to the scale of the war and its effects on the region.
In a "large disruption" scenario akin to the Arab oil embargo in 1973, the global oil supply could contract by six to eight million barrels per day. This contraction would result in an initial price increase ranging between 56 percent and 75 percent, reaching between $140 and $157 per barrel.
In the "medium disruption" scenario, roughly analogous to the Iraq war in 2003, the global oil supply would diminish by three to five million barrels per day. This reduction would cause oil prices to initially rise by 21 percent to 35 percent, reaching between $109 and $121 per barrel.
In a "small disruption" scenario, akin to the situation observed during the Libyan civil war in 2011, the global oil supply would witness a reduction of 500,000 to two million barrels per day. Under this scenario, it is anticipated that oil prices would initially rise by between three percent and 13 percent compared to the current quarter's average, reaching $93 to $102 per barrel, the report expects.
The World Bank's projections indicate that global oil prices are set to decline by 29 percent by the end of 2023, with an average of $90 per barrel. A further drop of five percent is anticipated, bringing prices to $81 per barrel in 2024 due to the anticipated moderation in global economic growth.
The World Bank projections are contingent on the assumption that the conflict in the Middle East does not escalate.
According to the report, agricultural commodity prices are expected to decrease in 2024 due to rising supplies, and base metals prices are also projected to decline by 5 percent. The report outlines an overall stabilization of commodity prices in 2025.
These projections are contingent on the assumption that the situation in Gaza does not escalate further.
“The conflict’s effects on global commodity markets have been limited so far. Overall oil prices have risen about 6 percent since the start of the conflict. Prices of agricultural commodities, most metals, and other commodities have barely budged,” said the report.
Commodity prices would increase if the conflict escalates in the Middle East and disruptions to oil supplies take place, the report added.
“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,” said Indermit Gill, the World Bank’s chief economist and senior vice president for Development Economics.
Gill noted that policymakers must remain vigilant, highlighting the potential for a dual-energy shock to the global economy if the conflict were to escalate.
Ayhan Kose, the deputy chief economist and director of the Prospects Group at the World Bank, pointed out that higher oil prices would inevitably lead to increased food prices.
“If a severe oil-price shock materializes, 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 10th 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,” said Kose.
Gold prices have also risen by eight percent since the onset of the conflict, the report stated.
Headline inflation, especially in developing countries, will also increase, the report anticipates.
The report underscores the importance of governments refraining from imposing trade restrictions, such as export bans on food and fertilizers, given the looming risk of heightened food insecurity.
Concerning the impact of the war in Gaza on food prices across the region, the report notes that a sustained spike in oil prices would lead to increased food prices, driven by elevated production and transportation costs for both food and fertilizers.
The report further acknowledges that fertilizer prices could potentially rise if there were substantial increases in the prices of natural gas and coal or if the conflict extended to affect the world's largest exporters of nitrogen-based fertilizers in the region.
The entire population of Gaza, comprising 2.3 million people, is in urgent need of humanitarian assistance, the report added.
Furthermore, an escalation of the conflict could have broader regional ramifications, impacting approximately 34 million people in Lebanon, Palestine, Yemen, and Syria, the report pointed out.
Yemen and Syria were already grappling with acute food insecurity prior to the outbreak of the war on Gaza. The report underscores that, in general, conflicts intensify food insecurity by disrupting market access, damaging infrastructure, and reducing incentives for investment.
Conflicts lead to a decline in agricultural productivity and labour efficiency. Additionally, they result in the displacement of people from their homes and villages, placing them in dire humanitarian circumstances with limited access to basic necessities such as food, water, and shelter.
On a global scale, the report anticipates that the ongoing high levels of food insecurity would exacerbate if the conflict in the region were to escalate.
“The number of severely food-insecure people globally has risen from 624 million in 2017 to an estimated 900 million in 2022 (FAO 2023),” the report noted.
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