Unlock Premium Data: Up to 50% Off InvestingProCLAIM SALE

Escalating Middle East conflict could impact global commodity prices

Published 11/01/2023, 11:54 PM

The escalating conflict in the Middle East could have significant impacts on global commodity prices, according to the World Bank's October 2023 Commodity Markets Outlook report. The Washington-based institution warns of potential hikes in oil and commodity prices if the Israel-Hamas conflict expands across the region. The report suggests that supply disruptions could cause a ripple effect on the global economy and exacerbate food insecurity.

In a small disruption scenario, similar to the Libyan civil war in 2011, the global oil supply would decrease by 500,000 to 2 million barrels per day, leading to an initial oil price increase of 3-13%. In a more severe scenario, akin to the Iraq war in 2003 or the Iran-Iraq war, the oil supply could be curtailed by 3-5 million barrels a day, driving up prices by 21-35%. A large disruption scenario comparable to the Arab oil embargo during the Yom Kippur War in 1973 or Iraq's invasion of Kuwait would reduce the global oil supply by 6-8 million barrels per day, causing prices to soar by 56-75%.

Oil prices could escalate from a $90 a barrel baseline forecast to $102 or surge to $157 per barrel in small and large disruption scenarios respectively. These fluctuations would also impact natural gas prices. The ongoing conflict has already led to a tragic loss of life, with approximately 9,400 deaths including Israeli civilians, soldiers, Americans and over 8,000 Palestinian casualties in Gaza and 110 in the West Bank. At least 10 Americans are among the 239 individuals held captive by Hamas. The situation has escalated due to Israel's expanded ground operations in Gaza and is being closely monitored by the international community.

Despite these potential disruptions, today's global economy is better equipped to handle major crude oil price shocks than during the 1970s due to decreased dependence on energy commodities, diversifying supply sources, strategic reserves, and institutions like the oil futures market and International Energy Association, according to the report.

Ayhan Kose, World Bank's Deputy Chief Economist, warns that sustained higher oil prices would inevitably lead to higher food prices. Indermit Gill, Chief Economist at the World Bank, advises policymakers to be vigilant as escalating conflicts in Ukraine and the Middle East could lead to a dual energy shock.

According to the World Bank's preliminary assessment, if the conflict does not expand further, its impact on commodity markets should be limited. It predicts crude oil prices to average $90 a barrel in the current quarter, declining to $81 next year due to slowing global economic growth. The report also forecasts a 4.1% decrease in overall commodity prices next year, with agricultural commodities and base metals prices expected to drop in 2024 and stabilize by 2025.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.