The World Bank has warned that any significant escalation of tensions in the Middle East could push oil prices above $100 a barrel and reverse the downward trend in global inflation.
Even before the recent ones missiles strikes from Iran and Israel, the institution saw a slowdown in the recent decline in commodity prices, complicating central banks' decisions on interest rates.
While the World Bank initially forecast an average crude oil price of $84 a barrel for this year, it acknowledged that this forecast may prove too optimistic if the crisis deepens. Fears of a full-scale conflict in the region have already pushed up oil prices and led to higher fuel costs for consumers.
In the last one report for commodity markets, the World Bank states that a moderate disruption in supply due to conflict could raise the average price of the variety "Brent” to $92 per barrel this year. More serious disruptions, however, could push oil prices above $100 a barrel, raising global inflation by nearly one percentage point in 2024.
Between mid-2022 and mid-2023, global commodity prices saw a significant decline, leading to a significant decline in global inflation. As of mid-2023, however, the World Bank's commodity price index remains relatively stable. This stability has led financial markets to adjust their expectations about the size and pace of interest rate cuts this year in response to continued inflationary pressures.
The World Bank's chief economist, Indermit Gill, stressed that falling commodity prices, which had previously contributed to disinflation, had now run into obstacles. As a result, this year and next, interest rates may need to remain higher than originally expected.
In addition, the World Bank emphasized that the escalation of the conflict in the Middle East could also affect the prices of natural gas, fertilizers and food. Disruption of LNG supplies, especially through the Strait of Hormuz, could lead to a significant increase in fertilizer prices and, subsequently, food prices.
Despite these concerns, the World Bank's baseline forecast suggests a decline in overall food prices of 6% in 2024 and 4% in 2025, as well as a decline in fertilizer prices of 22% in 2024 and 6% in 2025 .In addition, increased investment in green technologies has driven up prices of key metals essential to the global clean energy transition, such as copper and aluminum.
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