World Bank Warns of Commodity Price Surge and Potential Food Crisis

The World Bank forecasts a significant 23% increase in global commodity prices this year, the largest jump in several years. The institution warns that a combination of Middle East conflict, Black Sea grain shipment disruptions, and a strong El Niño phenomenon could trigger a food crisis. In its semi-annual Commodity Markets Outlook report, the bank projects energy prices to soar by approximately 32%, reaching levels not seen since 2022, following three consecutive years of decline. Oil is at the center of this projection, with Brent crude expected to average $91 per barrel this year, up from $69 last year, before falling to $79 in 2025. However, current market prices are already far exceeding this forecast, with Brent trading around $112 per barrel, an 85% increase since the start of the year. Global oil supply is anticipated to decrease by about 5.2% this year, the sharpest decline in over four decades, excluding the COVID-19 year. Consumption is projected to drop by 2.5%, the third-largest decrease on record, attributed to high prices and the shift towards electricity, particularly in China.

Natural gas prices in Europe are expected to rise by nearly 60% this year due to Middle Eastern export disruptions intensifying competition for liquefied natural gas cargoes. Global oil inventories have been depleted during recent conflicts, leaving the world more vulnerable to further supply shocks. El Niño, a periodic warming of Pacific Ocean waters, is known to disrupt global weather patterns, causing droughts in some regions and floods in others, impacting crop yields of rice, wheat, sugar, and coffee.

On the agricultural front, food prices are predicted to increase by about 10% this year and an additional 7% next year, totaling an 18% cumulative rise. Fertilizer prices are also expected to climb by approximately 14%, driven largely by a surge in urea prices. The combined impact of rising fuel and fertilizer costs, coupled with a potentially powerful El Niño event, could exacerbate these trends.

The World Bank outlined a downside scenario where escalating conflict, continued damage to Russian oil infrastructure, and renewed Black Sea shipping disruptions could push Brent crude to an average of $105 next year, with food prices 12% higher than the baseline forecast. Industrial metals are projected to rise by 25% to new record highs, with aluminum, copper, and tin seeing significant increases due to supply disruptions and strong demand from renewable energy, electric vehicles, and data centers. Precious metals are expected to surge by 40% as investors seek safe-haven assets amid geopolitical uncertainty.

Ayhan Kose, the World Bank's Deputy Chief Economist, cautioned that rising energy and trade costs could worsen inflation, food insecurity, and slow economic growth, emphasizing the need to protect poorer nations already burdened by debt. The bank has allocated $50 to $60 billion through existing instruments, including $25 billion in pre-arranged financing, to support social safety nets and provide working capital for businesses and farmers. These price increases also pose challenges for central banks, making it harder to curb inflation and leading markets to price in further interest rate hikes in the U.S. In Israel, oil prices directly affect fuel costs and the consumer price index, while also benefiting local gas companies.