Oversupply to Buffer Oil Prices Against Middle Eastern Conflict
The World Bank’s latest Commodity Markets Outlook indicates that global commodity prices are expected to reach a five-year low in 2025 due to an unprecedented oil surplus. This oversupply may dampen the potential impact of escalating conflicts in the Middle East on oil prices, as the market grapples with a projected excess of 1.2 million barrels per day next year.
This anticipated glut is primarily driven by stagnant oil demand in China, which has plateaued since 2023 due to a slowdown in industrial production and a shift towards electric vehicles and liquefied natural gas (LNG). Concurrently, non-OPEC+ countries are poised to increase their oil output, while OPEC+ retains considerable spare capacity of 7 million barrels per day—nearly double pre-pandemic levels.
From 2024 to 2026, global commodity prices are projected to decline by nearly 10%, with food prices falling by 9% this year and an additional 4% in 2025. However, food prices will remain approximately 25% higher than pre-pandemic averages. Energy prices are also expected to decrease, by 6% in 2025 and an additional 2% in 2026.
“Falling commodity prices and improved supply conditions can act as a buffer against geopolitical shocks,” noted Indermit Gill, Chief Economist at the World Bank. “However, these declines do little to mitigate the burden of high food prices in developing nations, where inflation rates are significantly higher than in advanced economies.”
Despite the volatility caused by ongoing conflicts in the Middle East, which have heightened concerns over potential damage to oil infrastructure, the average price of Brent crude is projected to fall to a four-year low of $73 per barrel in 2025, down from $80 in 2024. Should tensions escalate and reduce global oil supply by 2%—a scenario reminiscent of the disruptions seen during the Libyan civil war and the Iraq war—Brent prices could initially spike to $92 per barrel but would likely stabilize to an average of $84 in 2025.
“The resilience of the global economy today is markedly stronger than in previous years,” stated Ayhan Kose, Deputy Chief Economist at the World Bank. “This situation presents opportunities for policymakers in developing countries to leverage declining commodity prices to realign monetary policy and reassess costly fossil-fuel subsidies.”
Gold prices, often viewed as a safe haven during times of uncertainty, are projected to rise 21% this year, maintaining levels 80% above the pre-pandemic average for the next two years. Industrial metals are expected to remain stable, influenced by ongoing challenges in China’s property sector and increasing demand driven by the energy transition.
Additionally, the report explores the synchronization of commodity price movements during and after the pandemic, attributing this phenomenon to global economic disruptions and commodity-specific shocks, such as Russia’s invasion of Ukraine. The recent decoupling of price trends suggests a return to varied market dynamics.
As the global market braces for potential upheaval, the interplay between geopolitical tensions and supply conditions will be crucial in shaping the commodity landscape in the years ahead.