The World Bank has issued a warning that escalating conflicts might lead to inflation in developing countries, necessitating policy changes to alleviate food security risks. The bank has advised against the use of trade restrictions and price controls. Instead, it recommends improved social safety nets, diversified food sources, efficient food production and trade, and a shift towards renewable energy to provide a buffer against oil-price shocks.
The World Bank has cited India's non-basmati rice export ban as an example. The ban, influenced by potential El Niño effects and fears stemming from the 2007/08 food price crisis, could lead to high rice prices in 2024 if it continues. Moreover, India's recent reduction in fertilizer subsidies could impact global fertilizer demand.
The bank's report also revealed that oil prices are expected to average $90 per barrel this quarter, dropping to $81 next year as global economic growth slows down. Commodity prices are projected to decrease by 4.1% next year, with agricultural commodities and base metals also expected to decline. Nevertheless, these forecasts could change if conflicts escalate further.
The World Bank has outlined three risk scenarios that reflect potential disruptions in the global oil supply similar to those experienced during the Libyan civil war, Iraq war, and Arab oil embargo. These scenarios could lead to corresponding price surges.
So far, the impact of conflicts on global commodity markets has been relatively minor, with oil prices only increasing about 6% since the onset of the conflict and minor shifts in other commodity prices. However, an escalation could quickly worsen this outlook.
The bank noted the redirection of Russian exports from EU and G7 countries to China, India, and Türkiye due to spikes in Urals prices making the late 2022 price cap on Russian crude oil increasingly unenforceable. Policymakers are advised to stay alert as commodities like gold signal potential risks, particularly in light of a possible broader Middle East conflict that could prompt investors to shift towards safe-haven assets.
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