As geopolitical tensions rise, a historic surplus in oil supply could bring relief from inflation but complicate recovery efforts for millions facing food insecurity.
In a groundbreaking report released by the World Bank, global commodity prices are projected to drop to a five-year low in 2025, driven by an overwhelming oil surplus that may even dampen the price impacts of escalating conflicts in the Middle East. This dramatic shift signals significant changes in the global economic landscape, offering both challenges and opportunities.
As we look ahead, the oil supply is expected to exceed demand by a staggering 1.2 million barrels per day next year—a scenario that has only occurred during the pandemic shutdowns in 2020 and the 1998 oil-price crisis. This glut largely stems from a slowdown in China’s industrial production, where oil demand has stagnated since 2023, compounded by a surge in electric vehicle sales and liquefied natural gas (LNG) trucks. Moreover, non-OPEC+ countries are ramping up production, while OPEC+ itself holds substantial spare capacity of 7 million barrels per day—almost double what it was prior to the pandemic.
From 2024 to 2026, commodity prices are expected to fall nearly 10%. Food prices, for instance, are predicted to drop 9% this year and another 4% in 2025, although they will still hover around 25% above pre-pandemic averages. Energy prices are also set to decline by 6% in 2025 and an additional 2% in 2026. This downward trend in food and energy costs could provide much-needed relief for central banks aiming to rein in inflation. However, potential conflicts could throw a wrench in these plans, threatening energy supplies and driving prices back up.
Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group, emphasizes that while lower commodity prices may cushion the blow from geopolitical shocks, they do little to alleviate the struggle against high food prices in developing countries, where food inflation is twice that of advanced economies. Currently, over 725 million people are facing food insecurity.
Recent conflicts in the Middle East have injected volatility into oil prices, particularly as fears mount over possible damage to oil infrastructure. If tensions remain stable, the annual average price of Brent crude is expected to fall to a four-year low of $73 in 2025, down from $80 this year. However, should the conflict escalate and reduce global oil supply by 2%—akin to disruptions seen during the Libyan civil war in 2011—Brent prices could spike to $92 per barrel before settling at an average of $84 in 2025, still above baseline projections.
Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank, points out that the global economy is better positioned to handle potential oil shocks now than in the past. This situation presents a rare opportunity for policymakers in developing nations. Lower commodity prices can complement monetary policies aimed at controlling inflation and allow governments to reduce costly fossil-fuel subsidies.
Meanwhile, gold prices are on an impressive upward trajectory, expected to rise 21% over the average in 2023, as investors flock to this safe haven asset amid geopolitical uncertainties. Over the next two years, gold prices are predicted to remain around 80% higher than pre-pandemic averages, with only slight declines expected.
In the realm of industrial metals, stability is anticipated for 2025-2026, thanks to a balance between weak demand from China’s property sector and tight supply conditions, coupled with increasing needs related to the energy transition. However, any unexpected growth in China could introduce volatility in metal markets.
The report also highlights a fascinating analysis of why commodity prices moved in sync during and after the pandemic. It reveals that the global economic shockwaves and significant commodity-specific disruptions—like Russia’s invasion of Ukraine—were key drivers. As price movements have recently become less synchronized, this could signal a new phase in the global commodities landscape.
As we navigate through these changes, the economic implications are profound. The upcoming years may redefine how nations respond to commodity price shifts, and the potential for recovery or further challenges hangs in the balance.