World Bank warns of commodity market disruption amid Israel’s war on Palestine

World Bank warns of commodity market disruption amid Israel’s war on Palestine

The World Bank’s latest Commodity Markets Outlook has sounded the alarm about the potential impact of the escalating the Israeli-Palestinian conflict in the Middle East on global commodity markets. 

In the Bank’s baseline forecast, it anticipates oil prices averaging $90 a barrel in the current quarter before decreasing to an average of $81 a barrel next year as global economic growth slows. 

Overall commodity prices are expected to drop by 4.1% next year, with agricultural and base metal prices also projected to decline. 

A stabilization of commodity prices is expected by 2025.

So far, “the conflict has had limited effects on global commodity markets,” says the report. Oil prices have risen by approximately 6% since the conflict began, while prices for agricultural commodities, most metals, and other commodities have seen minimal movement.

However, the outlook could take a darker turn if the conflict escalates.  This comes on the heels of disruptions caused by the Russian invasion of Ukraine, and while the report says that the global economy is better equipped to handle oil-price shocks compared to the 1970s, the situation remains precarious nonetheless.

The report offers a preliminary assessment of the conflict’s near-term implications for commodity markets, suggesting that the effects will be contained if the conflict doesn’t escalate further. 

The report outlines three risk scenarios based on historical experiences since the 1970s, with the extent of disruption to oil supplies being the key variable. 

In a “small disruption” scenario, with a reduction in global oil supply by 500,000 to 2 million barrels per day, oil prices could initially increase by 3% to 13%, reaching a range of $93 to $102 a barrel. 

A “medium disruption” scenario, akin to the Iraq war in 2003, involving a cut in global oil supply by 3 million to 5 million barrels per day, could lead to an initial 21% to 35% surge in oil prices, to a range of $109 to $121 a barrel. 

A “large disruption” scenario, comparable to the Arab oil embargo in 1973, with a 6 million to 8 million barrels per day reduction in global oil supply, might cause prices to skyrocket by 56% to 75%, ranging between $140 and $157 a barrel.

Despite these potential risks, the report highlights how the global economy has improved its resilience to absorb oil price shocks since the energy crisis of the 1970s. 

Countries worldwide have reduced their dependence on oil, diversified their oil exporters, and expanded energy resources, including renewables. 

Some nations have established strategic petroleum reserves, supply coordination arrangements, and futures markets to mitigate oil shortages’ impact on prices.

Nonetheless, the report urges policymakers to remain vigilant. 

Gold prices, in particular, have risen by about 8% since the onset of the conflict, often signaling investor confidence erosion during periods of conflict and uncertainty.

The report encourages policymakers in developing countries to prepare for potential headline inflation increases and avoid trade restrictions like food and fertilizer export bans, which can intensify price volatility and food insecurity. 

The report states that implementing price controls and subsidies in response to higher food and oil prices is discouraged, and instead, governments should focus on diversifying food sources, and improving food production and trade efficiency. 

In the long term, transitioning to renewable energy sources is recommended to bolster energy security and mitigate the effects of oil price shocks.


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