The World Bank stated on Thursday that ongoing tensions in the Middle East could potentially halt or undermine recent progress in addressing global inflation. The Israeli military campaign in Gaza has heightened tensions in the region and led to an increase in oil prices. The bank’s forecast for global commodity markets highlighted that the escalating tensions in the Middle East are putting upward pressure on commodity prices, particularly oil and gold. This has effectively ended the period of deflation resulting from moderation in commodity prices and could worsen global inflation. The conflict in Gaza has extended for over 200 days, keeping regional tensions high.
Indermeet Gill, the World Bank Group’s Chief Economist and First Vice President, noted that the decrease in commodity prices, which had been a key factor in the decline of inflation, has come to a stop. This could mean that interest rates remain higher than anticipated for the current and upcoming years. Gill warned that a major energy shock caused by the ongoing tensions in the Middle East could undo much of the progress made in reducing inflation over the past couple of years. The bank outlined potential scenarios where disruptions in oil supply due to the conflict could lead to significant increases in crude oil prices and inflation.
In addition to affecting interest rates, a severe disruption in oil supply could exacerbate food insecurity, which has already worsened due to armed conflicts and high food prices in the past year. The World Bank’s analysis suggests that global inflation could rise by about one percentage point if the worst-case scenario of supply disruptions comes to pass. It is a challenging time for the world, with the potential for significant economic impact from ongoing tensions in the Middle East.