In the most recent report The World Bank's Commodity Markets Outlook points out how global commodity prices have stabilized, which has led to a global reduction in inflation, but warns that if the conflict in the Middle East breaks out, it could change its trend and rise again.
In this context, it formulated its projections under different scenarios, in the event that another major event of geopolitical tension does not occur, The bank expects a 3% drop in global commodity prices this year, and by 2025 it predicts it will be 4%.
“That means interest rates could remain higher than currently expected this year and next. The world is in a vulnerable moment: a major energy shock could undermine much of the progress in reducing inflation over the past two years,” said Indermit Gill, chief economist and senior vice president of the World Bank Group.
But if the conflict escalates further, the first immediate consequence would be the interruption in oil supplies, the bank points out that only a moderate interruption, would drive the price of Brent to US$92 per barrel, which in turn could raise global inflation, and They predict that if the price increase exceeds US$100 per barrel, global inflation in 2024 would grow almost one percentage point.
Another important commodity in the midst of geopolitical conflicts is gold, which serves as a safe haven asset for investors. For this, the World Bank predicts that it will reach a record average price in 2024 before moderating slightly in 2025.
“Gold has a special status, and its price often rises during periods of geopolitical and political uncertainty. Strong demand from several developing country central banks, coupled with increased geopolitical challenges, is expected “Boost gold prices throughout 2024,” the World Bank noted in the report.
Other prices, indicated by the entity, which would be affected if tension rises in the Middle East would be fertilizers and, consequently, food, since 20% of the world's trade in liquefied natural gas transits through the Strait of Hormuz and if the supply is interrupted, this would be a consequence.
While there is weaker growth, commodity prices rise
The deputy head of the World Bank Group and director of the prospects group, Ayhan Kose, noted that, “a surprising divergence is emerging between global growth and commodity prices,” highlighting that while the former is still weak, The cost of commodities will likely continue to be higher, in this and next year, than in the half decade before the Covid 19 pandemic. This is related to the increase in geopolitical tensions, “they maintain upward pressure on commodities and increase the risk of sudden price movements,” he added.
