Israel-Hamas war: World Bank warns of 'dual shock' to global commodity markets
In its latest Commodity Markets Outlook, the World Bank has said that as per its baseline forecast, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows.
- Oct 31, 2023,
- Updated Oct 31, 2023 10:05 AM IST
The World Bank has warned that the continuing conflict in the Middle East could push up global commodity and crude oil prices. While there has been a limited impact till now, the World Bank has cautioned that the energy market turmoil could impact food security as well. In its latest Commodity Markets Outlook, the World Bank has said that as per its baseline forecast, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows. Overall commodity prices are projected to fall 4.1 per cent next year, it further said. Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5 per cent in 2024. Commodity prices are expected to stabilise in 2025. The conflict’s effects on global commodity markets have been limited so far, it, however, noted, adding that overall oil prices have risen about 6 per cent since the start of the conflict and prices of agricultural commodities, most metals, and other commodities have remained largely constant. However, the outlook for commodity prices would “darken” quickly if the conflict were to escalate. Listing out three scenarios, the Bank said that in case of a small disruption scenario, the global oil supply would be reduced by 500,000 to 2 million barrels per day and prices would initially increase between 3 per cent and 13 per cent relative to the average for the current quarter—-to a range of $93 to $102 a barrel. In a “medium disruption” scenario. the global oil supply would be curtailed by 3 million to 5 million barrels per day, which would drive oil prices up by 21 per cent to 35 per cent initially—to between $109 and $121 a barrel. In a “large disruption” scenario, the global oil supply would shrink by 6 million to 8 million barrels per day, which would in turn push up prices up by 56 per cent to 75 per cent initially, to between $140 and $157 a barrel. Indermit Gill, Chief Economist and Senior Vice President for Development Economics, World Bank pointed out that 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,” he said. “Higher oil prices, if sustained, inevitably mean higher food prices,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “If a severe oil-price shock materialises, it would push up food price inflation that has already been elevated in many developing countries. India, which is the third largest importer of crude oil, has also been monitoring the developments closely. The Indian basket of crude oil averaged $ 90.2 per barrel in October, marginally down from $ 93.54 in September. The Finance Ministry’s monthly economic outlook for September noted that there are imminent fears of rising crude oil prices in the second half of the fiscal, given that the average price during the second quarter ($86.8 per barrel) was higher than the first quarter ($77.9 per barrel). “However, these averages are way lower than the average prices during the first quarter of 2022-23 ($109.5 per barrel) and second quarter of last fiscal ($97.9 per barrel),” it had said.
Also Read: 'They are not chess players': Did Hamas anticipate the blowback from Israel?
The World Bank has warned that the continuing conflict in the Middle East could push up global commodity and crude oil prices. While there has been a limited impact till now, the World Bank has cautioned that the energy market turmoil could impact food security as well. In its latest Commodity Markets Outlook, the World Bank has said that as per its baseline forecast, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows. Overall commodity prices are projected to fall 4.1 per cent next year, it further said. Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5 per cent in 2024. Commodity prices are expected to stabilise in 2025. The conflict’s effects on global commodity markets have been limited so far, it, however, noted, adding that overall oil prices have risen about 6 per cent since the start of the conflict and prices of agricultural commodities, most metals, and other commodities have remained largely constant. However, the outlook for commodity prices would “darken” quickly if the conflict were to escalate. Listing out three scenarios, the Bank said that in case of a small disruption scenario, the global oil supply would be reduced by 500,000 to 2 million barrels per day and prices would initially increase between 3 per cent and 13 per cent relative to the average for the current quarter—-to a range of $93 to $102 a barrel. In a “medium disruption” scenario. the global oil supply would be curtailed by 3 million to 5 million barrels per day, which would drive oil prices up by 21 per cent to 35 per cent initially—to between $109 and $121 a barrel. In a “large disruption” scenario, the global oil supply would shrink by 6 million to 8 million barrels per day, which would in turn push up prices up by 56 per cent to 75 per cent initially, to between $140 and $157 a barrel. Indermit Gill, Chief Economist and Senior Vice President for Development Economics, World Bank pointed out that 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,” he said. “Higher oil prices, if sustained, inevitably mean higher food prices,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “If a severe oil-price shock materialises, it would push up food price inflation that has already been elevated in many developing countries. India, which is the third largest importer of crude oil, has also been monitoring the developments closely. The Indian basket of crude oil averaged $ 90.2 per barrel in October, marginally down from $ 93.54 in September. The Finance Ministry’s monthly economic outlook for September noted that there are imminent fears of rising crude oil prices in the second half of the fiscal, given that the average price during the second quarter ($86.8 per barrel) was higher than the first quarter ($77.9 per barrel). “However, these averages are way lower than the average prices during the first quarter of 2022-23 ($109.5 per barrel) and second quarter of last fiscal ($97.9 per barrel),” it had said.
Also Read: 'They are not chess players': Did Hamas anticipate the blowback from Israel?