Last Updated: October 30, 2023, 18:10 IST
Washington D.C., United States of America (USA)
Israeli firefighters and rescuers stand on the roof as they access the damage to a partially destroyed building following a rocket attack from the Palestinian Gaza Strip, on the Israeli city of Tel Aviv (Image: AFP)
World Bank warns of potential oil price surge due to Israel-Hamas conflict. Impact on global food prices
The World Bank on Monday said that oil prices could be pushed into “uncharted waters” if the Israel-Hamas war intensifies, which could result in increased food prices worldwide. The World Bank’s Commodity Markets Outlook found that while the effects on oil prices should be limited if the conflict doesn’t widen, the outlook “would darken quickly if the conflict were to escalate.”
“Although the global economy is in a much better position than it was in the 1970s to cope with a major oil-price shock, an escalation of the latest conflict in the Middle East—which comes on top of disruptions caused by the Russian invasion of Ukraine—could push global commodity markets into uncharted waters,” the global lender said in a statement.
The report finds that the effects on oil should be limited if the conflict doesn’t widen. Under the Bank’s baseline forecast, oil prices are expected to average $90 a barrel in the current quarter before declining to an average of $81 a barrel next year as global economic growth slows. “Overall commodity prices are projected to fall 4.1 percent next year. Prices of agricultural commodities are expected to decline next year as supplies rise. Prices of base metals are also projected to drop 5 percent in 2024. Commodity prices are expected to stabilize in 2025,” the World Bank said.
The conflict’s effects on global commodity markets have been limited so far. Overall oil prices have risen about 6 percent since the start of the conflict. Prices of agricultural commodities, most metals, and other commodities have barely budged, the lender said.
The attack on Israel by the militant outfit Hamas and the ensuing Israeli military operation against Hamas has raised fears of a wider Mideast conflict. Indermit Gill, the World Bank’s chief economist, said “Russia’s invasion of Ukraine” has already had disruptive effects on the global economy “that persist to this day.” “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,” Gill said.
“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 intensify food insecurity, not only within the region but also across the world.”
The global lender said the fact that the conflict has so far had only modest impacts on commodity prices may reflect the global economy’s improved ability to absorb oil price shocks. Since the energy crisis of the 1970s, the report says, countries across the world have bolstered their defenses against such shocks.
