War in the Middle East: a double shock to global commodity markets
The situation in the Middle East, marked by an ongoing war, could have a major impact on global commodity markets. According to a recent World Bank report, although the effects are limited for the moment, tensions in the energy market risk worsening food insecurity.
The World Bank report, Commodity Markets Outlook, examines the foreseeable short-term consequences of the conflict on commodity markets. According to experts, if the conflict does not spread further, the effects should remain limited. However, it is important to remain vigilant, as an escalation of the conflict could have major repercussions.
In the World Bank’s baseline scenario, oil prices are expected to average $90 per barrel in the current quarter, before falling to $81 next year due to slowing global economic growth. When it comes to agricultural products, an increase in supply is expected to lead to lower prices next year. Likewise, base metal prices are expected to decline in 2024. Experts expect commodity prices to stabilize in 2025.
So far, the conflict’s effects on global commodity markets have been limited. Oil prices have increased by around 6% since the start of the conflict, while prices of agricultural products and other raw materials have remained relatively stable.
However, if the conflict escalates, the outlook could quickly darken. The report describes three risk scenarios based on historical events, ranging from limited to major disruption in oil supplies. Under the most severe scenario, global oil supply could fall by 6 to 8 million barrels per day, which would initially cause prices to rise by 56 to 75 percent.
This would have a direct impact on food prices, exacerbating already high inflation in many developing countries.
In conclusion, the war in the Middle East has the potential to cause a double shock to global commodity markets. Although the current effects are limited, an escalation of the conflict could lead to major upheavals. It is essential that policymakers remain vigilant and take action to mitigate the potential consequences on the global economy and food insecurity.