Home » How Middle East Conflict Could Affect Global Commodity Markets
Featured Global News Middle East News

How Middle East Conflict Could Affect Global Commodity Markets


A new report from the World Bank examines the potential impact of the ongoing conflict in the Middle East on commodity prices, especially oil. It finds that the effects have been limited so far, but warns that a wider escalation could have serious consequences for the global economy and food security.

The World Bank’s latest Commodity Markets Outlook provides a preliminary assessment of the possible implications of the conflict for commodity markets in the near term. It assumes that the conflict does not spread beyond its current scope and that global economic growth slows as projected. Under this baseline scenario, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year. Overall commodity prices are projected to fall 4.1% next year, as supplies of agricultural commodities and base metals increase. Commodity prices are expected to stabilize in 2025.

The report notes that the global economy is in a much better position than it was in the 1970s to cope with a major oil price shock, thanks to improved energy efficiency, lower dependence on oil, and more diversified energy sources. However, it also warns that an escalation of the conflict could push global commodity markets into uncharted waters, with significant implications for inflation, growth, and poverty.

The World Bank outlines three risk scenarios based on historical experience since the 1970s, depending on the degree of disruption to oil supplies. In a “small disruption” scenario, similar to the Libyan civil war in 2011, the global oil supply would be reduced by 500,000 to 2 million barrels per day. This would initially increase oil prices by 3% to 13%, to a range of $93 to $102 a barrel. In a “medium disruption” scenario, similar to the Iraq war in 2003, the global oil supply would be curtailed by 3 million to 5 million barrels per day. This would initially drive oil prices up by 21% to 35%, to a range of $109 to $121 a barrel. In a “large disruption” scenario, comparable to the Arab oil embargo in 1973, the global oil supply would shrink by 6 million to 8 million barrels per day. This would initially drive prices up by 56% to 75%, to a range of $140 to $157 a barrel.

The report cautions that higher oil prices could have spillover effects on other commodity markets, especially food. It notes that energy accounts for about a third of the cost of producing cereals and that higher fuel prices could increase transportation costs and reduce trade flows. It also points out that higher oil prices could stimulate biofuel production, which could divert land and crops away from food production. The report stresses that energy-market turmoil could intensify food insecurity, especially in low-income countries that are net importers of both food and fuel.

The report concludes that policymakers should monitor commodity markets closely and be prepared to take appropriate measures to mitigate the impact of any price shocks on their economies and populations. It also recommends that countries pursue structural reforms to enhance their resilience and diversification, such as improving energy efficiency, investing in renewable energy sources, promoting agricultural productivity and innovation, and strengthening social safety nets.

“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,” said Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics. “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.”

“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 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 worsen food insecurity, not only within the region but also across the world.”

The fact that the conflict has so far had only modest impacts on commodity prices may reflect the global economy’s improved ability to cope with oil price shocks. Since the energy crisis of the 1970s, the report says, countries across the world have strengthened their defenses against such shocks. They have reduced their dependence on oil—the amount of oil needed to generate $1 of GDP has fallen by more than half since 1970. They have a more diversified base of oil exporters and expanded energy resources, including renewable sources. Some

countries have established strategic petroleum reserves, set up arrangements for the coordination of supply, and developed futures markets to mitigate the impact of oil shortages on prices. These improvements suggest that an escalation of the conflict might have less severe effects than would have been the case in the past.

Policymakers nevertheless need to remain alert, the report says. Some commodities—gold in particular—are flashing a warning about the outlook. Gold prices have risen about 8% since the onset of the conflict. Gold prices have a unique relationship to geopolitical concerns: they rise in periods of conflict and uncertainty often signaling a loss of investor confidence. If the conflict escalates, policymakers in developing countries will need to take steps to manage a potential increase in headline inflation. Given the risk of greater food insecurity, governments should avoid trade restrictions such as export bans on food and fertilizer. Such measures often exacerbate price volatility and heighten food insecurity. They should also refrain from introducing price controls and price subsidies in response to higher food and oil prices. A better option is to improve social safety nets, diversify food sources, and increase efficiency in food production and trade. In the longer term, all countries can enhance their energy security by accelerating the transition to renewable energy sources—which will reduce the effects of oil-price shocks.

Source: Zawya

About the author

Benny Horace Manning

Add Comment

Click here to post a comment

Instagram

Instagram has returned empty data. Please authorize your Instagram account in the plugin settings .

Advertisement

Advertisement Small

Flickr

  • Fall mantra
  • Outsights
  • sneaker
  • Intempérils!
  • Oscars
  • Aida
  • back duo
  • trio xxi
  • decisive

ThemeForest

Collaboratively harness market-driven processes whereas resource-leveling internal or "organic" sources. Competently formulate.

Calendar

June 2024
M T W T F S S
 12
3456789
10111213141516
17181920212223
24252627282930

RSS Meks Blog

  • 10 Best Knowledge Base & Wiki WordPress Themes 2021 September 15, 2021
    Running a successful online business requires an exceptional WordPress knowledge base theme that organizes documentation and helps customers. Customization options, intuitive navigation, unique layouts, and fast responsiveness are just some of the features you need. The following 10 WordPress wiki themes represent the best options for 2021 and beyond. Explore the full range to determine […]
    Dusan Milovanovic
  • How to increase WordPress Memory Limit (quick fixes) June 16, 2021
    Here is a post about how to increase the memory limit in WordPress. Allowed memory size exhausted error message showed up in your WordPress installation? No worries – this is one of the most common errors in WordPress. You can apply an easy fix by increasing the memory limit in your PHP. Table of Contents […]
    Dusan Milovanovic
  • How to use (and why) WordPress sitemap plugin March 1, 2021
    Did you know that by knowing how to use the WordPress sitemap plugin you can significantly improve your site’s visibility and traffic? Although it isn’t mandatory to have a sitemap on your site, having one significantly improves the site’s quality, crawlability and indexing. All this is important for better optimization, which is why we wanted […]
    Ivana Cirkovic
  • 22 free and premium podcast software for your show [2021 edition] January 18, 2021
    You’re determined to start or improve your podcast but don’t know which podcast software to use to really make it stand out? We’ve got you! #podcasting Top 22 free and premium podcast software for your show #WordPressTips #podcasting The post 22 free and premium podcast software for your show [2021 edition] appeared first on Meks.
    Ivana Cirkovic
  • Digital storytelling with WordPress – an all-in-one guide to make your web stories pop! November 23, 2020
    Wondering how to improve digital storytelling with WordPress and build more awareness and exposure of your business? Let our guide lead the way. The post Digital storytelling with WordPress – an all-in-one guide to make your web stories pop! appeared first on Meks.
    Ivana Cirkovic
  • How to use WordPress autoposting plugin to improve your visibility and SEO? September 10, 2020
    Did you know you can use the WordPress autoposting plugin for your content efforts and improve not only your time management but your business and visibility as well? The post How to use WordPress autoposting plugin to improve your visibility and SEO? appeared first on Meks.
    Ivana Cirkovic
  • How to create a personal branding site? Step-by-step DIY guide August 15, 2020
    Looking for ways and means to create a personal branding site? Well, look no further ’cause we’re giving away all the how-to’s to do it yourselves! The post How to create a personal branding site? Step-by-step DIY guide appeared first on Meks.
    Ivana Cirkovic
  • Top 15 WordPress content plugins and tools to improve your visibility and rankings July 16, 2020
    Let’s take a look at some of the must-have WordPress content plugins and tools to use to improve both your UX and rankings. The post Top 15 WordPress content plugins and tools to improve your visibility and rankings appeared first on Meks.
    Ivana Cirkovic
  • WCEU 2020 recap – key takeaways from the biggest online WordPress conference June 9, 2020
    Missed WCEU 2020 and all the exciting stuff from there? Here are all the key takeaways and main points to remember so, take notes! The post WCEU 2020 recap – key takeaways from the biggest online WordPress conference appeared first on Meks.
    Ivana Cirkovic
  • How to change the WordPress username? An easy step-by-step guide May 14, 2020
    Wondering how can you change WordPress username once you set up your blog or site? Read all about it in our helpful guide! The post How to change the WordPress username? An easy step-by-step guide appeared first on Meks.
    Ivana Cirkovic

Text

Distinctively utilize long-term high-impact total linkage whereas high-payoff experiences. Appropriately communicate 24/365.