New Delhi [India], October 31 (ANI): A recent report by the World Bank’s Commodity Markets Outlook raises concerns about the global commodity markets, indicating that an escalation of the ongoing conflict in the Middle East, coupled with disruptions caused by Russia’s invasion of Ukraine, could lead to unforeseen challenges in the world’s commodities.
While the global economy is in a more resilient state than in the 1970s to manage a significant oil price shock, the compounding impacts of these two conflicts could push global commodity markets into unprecedented territory.
The preliminary assessment in the report reveals that the potential effects of the current conflict will remain contained if it doesn’t intensify.
According to the Bank’s baseline forecast, oil prices are anticipated to average around USD 90 per barrel in the current quarter, later decreasing to USD 81 per barrel next year due to slowing global economic growth.
Overall commodity prices are projected to fall by 4.1 per cent next year, primarily attributed to increasing supplies. Agricultural commodities prices are also expected to decline, alongside a 5 per cent drop in base metals prices in 2024.
The report predicts that commodity prices will stabilize in 2025.
Although the current conflict has had limited impacts on global commodity markets, any escalation could potentially lead to dire consequences.
The report outlines three risk scenarios based on historical precedents since the 1970s, with the extent of oil supply disruption serving as a key determinant.
In a “small disruption” scenario, a reduction of 500,000 to 2 million barrels per day could lead to a 3 per cent to 13 per cent initial increase in oil prices, reaching a range of USD 93 to USD 102 per barrel.
In a “medium disruption” scenario, with oil supply curtailed by 3 million to 5 million barrels per day, the initial increase in oil prices could reach 21 per cent to 35 per cent, ranging from USD 109 to USD 121 per barrel.
The most severe scenario, a “large disruption,” could result in a reduction of 6 million to 8 million barrels per day, causing an initial surge in oil prices by 56 per cent to 75 per cent, reaching a range of USD 140 to USD 157 per barrel.
Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics, highlighted, “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. Policymakers will need to be vigilant. If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades–not just from the war in Ukraine but also from the Middle East.”
In case of sustained higher oil prices, which often result in higher food prices, Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group, noted, “Higher oil prices, if sustained, inevitably mean higher food prices”.
Kose said, “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 tenth 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.”
Despite the limited impact of the ongoing conflict on commodity prices, the report highlights the need for continued vigilance among policymakers, especially regarding potential inflation and food insecurity.
The report emphasizes the importance of avoiding trade restrictions such as food and fertilizer export bans and discourages the implementation of price controls and subsidies in response to elevated food and oil prices.
The suggested approach is to enhance social safety nets, diversify food sources, and increase efficiency in food production and trade. In the long term, transitioning to renewable energy sources will help bolster global energy security and mitigate the effects of oil-price shocks. (ANI)
