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World Bank: Conflict in  West  Asia  could  cause a “double 2011 shock” in  global commodity  markets  

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Last updated: 2023/10/31 at 1:14 PM
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 The World Bank  emphasized  that if  conflict escalates, policymakers in developing countries will need to take steps to manage  the potential for  a  rise  in  overall  inflation. 

  Conflict  in West Asia,  combined with disruption from Russia’s  invasion of Ukraine, has  had a  limited impact on commodity  prices,  but could  cause a “double shock”  to commodity  markets, as disruption in energy  markets  could  further increase  food insecurity,  according to  the World  Bank. »  said in its latest Commodity  Market Outlook report.  

 Noting that  India’s  ban on  non-basmati rice  exports “has shaken  global markets since  mid-July”,  the World Bank said developing countries should avoid trade restrictions such as  bans.  export  of  food  products  and  fertilizers.  

  Businesses  should avoid trade restrictions such as  bans on food and  fertilizer exports.  

  “The increase in  oil prices, if  prolonged, will certainly lead to an increase in  food prices. If a severe  oil  shock  occurs,  it  will increase  food price  inflation, which is  already  high  in many developing countries.  By  the end of 2022, more than 700 million  people, equivalent to nearly 1/10  of the  world’s population, will fall into malnutrition. The latest  escalation of the  conflict  will further increase  food insecurity, not  just in  the region but also  worldwide.  

 The World Bank  emphasized  that if  conflict escalates, policymakers in developing countries will need to take steps to manage  the potential for  a  rise  in  overall  inflation. 

 “Given the  growing  risk of  food insecurity, governments should avoid trade restrictions such as  bans on food and  fertilizer exports.  Such measures often  increase  price volatility and  worsen  food insecurity. They should also refrain from introducing price controls and  subsidies  to  cope with rising  food and oil prices. A better option is to improve  the  social safety  net,  diversify food  sources  and increase  the  efficiency  of  food production and  trading.  In the  long  term, all countries can  increase  energy security by accelerating the transition to renewable energy  sources, which  will mitigate the  impact  of  oil  shocks,” the report said.  said.  

 Noting  India’s  ban on non-basmati rice  exports,  the World Bank said rice prices will remain high in  2024, as long as  India maintains export  restrictions. He  also said that even  if fertilizer  demand  recovers, India’s subsidy reduction  in  the second half of the season  (early  October) could further impact demand. 

  “India  bans  non-basmati rice  exports  in response to  rising  domestic prices (due to  floods  in northern India) and  concerns about the potential impact  of  El Niño  in  key rice growing areas .  These measures have  shaken  global markets since mid-July. Rice prices in August and September 2023 reached  their  highest  level  since the 2007/08 food price crisis,”  the report  said. India accounts for nearly  40%  of  global  rice exports.  The World Bank said oil  prices are expected to average $90 a barrel this  quarter,  before falling to $81 a barrel next year as global economic growth  slows. “General  commodity prices are  expected  to fall 4.1% next year.  Agricultural commodity prices  are expected to decline next year  due to increased supply. Base metal prices  are also  expected  to  decline  5% in 2024. Commodity prices are expected to  stabilize  in 2025,” the report said. However, the outlook for commodity prices  will quickly  darken  if the conflict  escalates. Laying out  three risk scenarios based on historical experience since the 1970s, the World Bank said  that  in  the “minor  disruption” scenario,  global oil  supplies  would  fall  by  between  500,000  and  2 million barrels per  day, roughly  equivalent to the reduction  observed  during the Libyan civil  war. war.  war in 2011 and  oil  prices will  initially increase to  between 93 and 102 USD/barrel.  

 In a “medium disruption”  scenario – roughly  equivalent to the  2003  Iraq  War –  global oil  supplies  would  fall  by 3  to 5 million barrels per day, which could  cause  oil prices to  rise between $109 and $121 per carton.  In a  “major  disruption”  scenario – comparable  to the  1973  Arab oil embargo  –  global oil  supplies  would  fall  by 6  to 8 million barrels per day, which could  push  prices  up by 140 million barrels per day.  to  157 USD/barrel. .  

  So far, the impact of the conflict  on global commodity markets  has  been  limited,  with  overall oil prices  up around 6%  since the start of the conflict and prices of agricultural commodities, most  metals types  and other  raw materials remained virtually unchanged. However,  the report said the outlook for commodity prices would  quickly  darken  if  conflict  intensifies.  

  World Bank: Conflict in  West  Asia  could  cause a “double shock” in  global commodity  markets 

  World  Bank: Conflict in  West  Asia  could  cause a “double shock” in  global commodity  markets  

 The World Bank  emphasized  that if  conflict escalates, policymakers in developing countries will need to take steps to manage  the potential for  a  rise  in  overall  inflation.  

“Given the  growing  risk of  food insecurity, governments should avoid trade restrictions such as  bans on food and  fertilizer exports.  Such measures often  increase  price volatility and  worsen  food insecurity. They should also refrain from introducing price controls and  subsidies  to  cope with rising  food and oil prices. A better option is to improve  the  social safety  net,  diversify food  sources  and increase  the  efficiency  of  food production and  trading.  In the  long  term, all countries can  increase  energy security by accelerating the transition to renewable energy  sources, which  will mitigate the  impact  of  oil  shocks,” the report said.  said.  Noting  India’s  ban on non-basmati rice  exports,  the World Bank said rice prices will remain high in  2024, as long as  India maintains export  restrictions. He  also said that even  if fertilizer  demand  recovers, India’s subsidy reduction  in  the second half of the season  (early  October) could further impact demand. 

  “India  bans  non-basmati rice  exports  in response to  rising  domestic prices (due to  floods  in northern India) and  concerns about the potential impact  of  El Niño  in  key rice growing areas .  These measures have  shaken  global markets since mid-July. Rice prices in August and September 2023 reached  their  highest  level  since the 2007/08 food price crisis,”  the report  said. India accounts for nearly  40%  of  global  rice exports. 

  The World Bank said oil  prices are expected to average $90 a barrel this quarter before falling to $81 a barrel next year as global economic growth  slows. “General  commodity prices are  expected  to fall 4.1% next year.  Agricultural commodity prices  are expected to decline next year  due to increased supply. Base metal prices  are also  predicted  to  fall  5%  by  2024. Commodity prices are expected to  stabilize by  2025,” the report said. However, the outlook for commodity prices  will quickly  darken  if the conflict  escalates. Laying out  three risk scenarios based on historical experience since the 1970s, the World Bank said  that  in  the “minor  disruption” scenario,  global oil  supplies  would  fall  by  between  500,000  and  2 million barrels per  day, roughly  equivalent to the reduction  observed  during the Libyan civil  war. war.  war in 2011 and  oil  prices will  initially increase to  between 93 and 102 USD/barrel.  

 In a “medium disruption”  scenario – roughly  equivalent to the  2003  Iraq  War –  global oil  supplies  would  fall  by 3  to 5 million barrels per day, which could  cause  oil prices to  rise between $109 and $121 per carton.  In a  “major  disruption”  scenario – comparable  to the  1973  Arab oil embargo  –  global oil  supplies  would  fall  by 6  to 8 million barrels per day, which could  push  prices  up by 140 million barrels per day.  to  157 USD/barrel. 

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  So far, the impact of the conflict  on global commodity markets  has  been  limited,  with  overall oil prices  up around 6%  since the start of the conflict and prices of agricultural commodities, most  metals types  and other  raw materials remained virtually unchanged. However,  the report said the outlook for commodity prices would  quickly  darken  if  conflict  intensifies.  

  Noting Russia’s orientation  of  exports from EU and G7 countries to China, India and  Turkey,  the World Bank said  a  price  ceiling for  Russian crude  to be introduced at the end of 2022 is likely increasingly inapplicable due to recent increases in  oil  prices  in  the  Urals,  and  the  Price Cap  has not  caused  significant supply disruptions, with  Russian oil production and  export volumes  remaining relatively  stable. “This  cap  does  not  create  significant supply disruptions, with  Russian oil production and  export volumes  remaining relatively  stable, partly  reflecting the  orientation  of Russian exports from  the  EU and G7 countries to China, India and  Turkey.  There  is growing  uncertainty  about  the discount at which Russian oil trades, as  Ural  benchmark  prices  are  unclear  and  European brokers’  shipping cost estimates  become more uncertain as their market share  increased,” he  said. 

Source www.indianexpress.com

  Looking  ahead, policymakers  must  remain  vigilant,  with some  commodities – notably gold – raising warnings  about the outlook. “Gold prices have  increased  about 8% since the  start  of the conflict. Gold prices have a  special  relationship  with  geopolitical concerns: they rise in  times  of conflict and  instability, which  often  signals  an erosion of investor

confidence,”  he  said, adding that in the event of  more widespread conflict in the Middle East, gold prices  will  likely  rise  from already high levels as investors  turn  to safe-haven assets.  

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