But the report also assesses what might happen if the conflict were to escalate, specifically if it resulted in reducing the global oil supply by 2%, or 2 million barrels per day, by the end of this year—a scale of disruption that occurred with the Libyan civil war in 2011 and the Iraq war in 2003. If a similar disruption were to recur, Brent prices would initially rise sharply to a peak of $92 a barrel. However, oil producers unaffected by the conflict could quickly respond to higher prices by boosting oil production. As a result, the price spike could be relatively short-lived, with the oil price averaging $84 a barrel in 2025. That would still be 15% above the baseline forecast for 2025 but only 5% above the 2024 average. “The good news is that the global economy appears to be in much better shape than before to cope with a significant oil shock,” said Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group.
“That opens up some rare opportunities for policymakers in developing economies: first, declining commodity prices can provide a helpful complement to monetary policy to bring inflation back to targets; second, policymakers have a window to wind back costly fossil-fuel subsidies.” The average price of gold—a popular choice for investors seeking “safe haven”—is expected to hit a record this year, climbing 21% over the average in 2023. Gold holds a special status among assets, often rising in price during periods of geopolitical and policy uncertainty, including conflicts. Over the next two years, gold prices are expected to remain 80% higher than the average in the five years preceding the COVID-19 pandemic, declining only slightly. The price of industrial metals is expected to remain steady in 2025-26, as weakness in China’s property sector is offset by tight supply conditions and rising demand for some metals from the energy transition. However, unexpected growth outcomes in China could prompt volatility in metals markets. A special focus section of the report examines why global commodity-price movements were so synchronised during and after the pandemic.
It finds that commodity prices moved in tandem during the 2020-23 period because of global economic repercussions of the pandemic as well as large-scale commodity-specific shocks such as Russia’s invasion of Ukraine. Synchronised price increases tend to lead to higher global inflation and lower economic growth. Over the past year or so, price movements have become less synchronised.