The report recognises the global economy’s improved resilience to oil shocks but warns that the Middle East conflict, combined with earlier disruptions from the Russian invasion of Ukraine, could create uncertainty in commodity markets.
According to the report, the effects on commodity markets are expected to be limited if the Middle East conflict does not escalate.
Under the World Bank’s baseline forecast, oil prices are projected to average $90 (£74) per barrel in the current quarter, with a subsequent decline to an average of $81 (£66) per barrel next year as global economic growth slows.
Overall, commodity prices are anticipated to fall by 4.1% in the following year, driven by rising supplies of agricultural commodities and a projected 5% decrease in base metal prices in 2024, with stabilization expected in 2025.
So far, the impact of the conflict on global commodity markets has been minimal, with overall oil prices rising by approximately 6% since the conflict began.
Prices of agricultural commodities, most metals, and other commodities have experienced little movement.
However, the outlook for commodity prices could swiftly darken if the conflict were to intensify.
The report outlines potential scenarios based on historical experiences since the 1970s, depending on the degree of disruption to oil supplies.
In a “small disruption” scenario, with a reduction of 500,000 to two million barrels per day in global oil supply, oil prices would initially rise by 3% to 13%, reaching a range of $93 (£76.5) to $102 (£83.9) per barrel.
In a “medium disruption” scenario, similar to the Iraq war in 2003, a curtailment of three million to five million barrels per day could drive oil prices up by 21% to 35%, reaching between $109 (£89.7) and $121 (£99.5)per barrel.
In a “large disruption” scenario, equivalent to the Arab oil embargo in 1973, a reduction of six million to eight million barrels per day would lead to an initial price increase of 56% to 75%, reaching between $140 (£115) and $157 (£129.2) per barrel.
Indermit Gill, the World Bank’s Chief Economist and Senior Vice President for Development Economics said: “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.”