World Bank: Commodity prices could spike on Middle East, West Asia Conflicts

The World Bank predicts that the prolonged conflict in the Middle East will lead to a sharp increase in the price of commodities, especially natural gas and oil.

Since the conflict began, energy prices have already increased by 9%, and there may be more shocks ahead. This scenario is similar to past occurrences that significantly disrupted oil supplies, such as the Iranian revolution, the Arab oil embargo, and the Iraqi invasion of Kuwait.

Should the conflict intensify, it has the potential to severely disrupt oil supplies, which would cause an initial spike in oil prices and have an effect on other markets.

The supply side problems in the oil markets have already led to an increase in the World Bank’s commodity price index. It increased by 5% in Q3.

The market effects haven’t been as strong as expected thus far. The price of Brent crude has not decreased since the initial shock.

This quarter, the Washington-based lender projects average oil prices of $90 per barrel. In addition, it has offered three distinct scenarios—a small-disruption scenario, a medium-disruption scenario, and a regional conflict—based on differing degrees of disruption.

With a geographically varied supply, the world’s dependency on oil has decreased, which may be able to moderate some of the effects of price increases.

The fighting is also anticipated to drive up prices for gold, natural gas, and oil and gas. It is predicted that futures for the most well-known commodity, precious metal, will surpass $2,000 per ounce.

The World Bank has also issued a warning, stating that the ongoing hostilities in West Asia plus Russia-Ukraine war may shock commodity markets twice over, as instability in the energy sector may make food insecurity worse.

The bank advises developing nations to stay away from trade restrictions that can exacerbate price volatility and heighten food insecurity, such as export bans on food and fertilizers. Governments should instead concentrate on enhancing social safety nets, expanding the variety of food sources available, and boosting the productivity of the food industry.

The bank also warns that rice prices will remain high in 2024 unless India maintains export curbs. The bank also warns that a cut in India’s subsidy for the second half of the season could further impact demand for fertilizers.

The bank also warns that if the conflict escalates, policymakers in developing countries will need to take steps to manage a potential increase in headline inflation.