Middle East Conflict to Weaken Growth as Commodity Prices Surge, World Bank Says

By Paul Hannon

A jump in commodity prices as a result of the conflict in the Middle East is set to push inflation higher and growth lower in developing economies, the World Bank said Tuesday.

Shipping has largely stopped moving through the Strait of Hormuz since the U.S. and Israel launched their first attacks on Iran in late February, sharply reducing supplies of oil, natural gas, urea and other raw materials to the rest of the world.

Prices have jumped in response. In a report on the outlook for commodities, the World Bank said it expects Brent crude prices to average $86 a barrel this year even if the strait reopens gradually from next month, up from $65 in 2025.

With supplies of other raw materials also impaired, the World Bank said commodity prices are set to rise by 16% this year, recording their first annual increase since 2022, the year in which Russia invaded Ukraine. As a result, prices would be 25% higher than forecast by the bank's economists in January.

However, should the disruption to shipping prove longer lasting, Brent could average between $95 and $115 a barrel, with prices of other commodities also rising more sharply.

The development bank's economists calculate that in its more benign scenario, developing economies would have growth of 3.6%, a weaker outcome than the 4% forecast in January. Inflation is expected to average 5.1%, a percentage point higher than forecast before the start of the war.

Growth will likely weaken as households forced to spend more on essentials have less to devote to other goods and services, while interest rates are likely to rise in response to the pickup in inflation. The central banks of Pakistan and the Philippines have already raised borrowing costs to tackle the new boost to inflation, and more are likely to follow.

"The poorest people, who spend the highest share of their income on food and fuels, will be hit the hardest, as will developing economies already struggling under heavy debt burdens," Indermit Gill, the World Bank's chief economist, said. "War is development in reverse."

The bank said global oil production is likely to fall by 1.5% in 2026, the third-largest drop in a single year across four decades.

Looking back over those 40 years, the bank's economists found that shocks caused by conflicts between nations have a larger and more lasting impact on prices than other big changes, including the discovery of new oil reserves or limits on production agreed by leading suppliers.

They estimate that a 1% drop in oil production driven by "surging geopolitical risk" drives an average price rise of 11%, which the economists said was "a much larger increase than previous studies have reported for oil supply shocks in general."

The scramble for alternatives to more expensive oil and natural gas will impact other energy sources, with coal prices projected to rise by 20%, while demand for edible oils, sugar and maize might also increase as they can be used to produce alternatives to gasoline such as biodiesel and ethanol.

Aside from energy, the conflict has severely affected the supply of urea, a key ingredient for many fertilizers which itself requires large inputs of the natural gas that is abundant in the region.

The World Bank said it expects urea prices to be 60% above 2025 levels, leading to a 31% rise in the price of fertilizers.

In 2026, the bank's economists expect to see a 2% rise in food prices, a smaller increase than in 2022. In that earlier conflict, both protagonists were major suppliers to world markets. However, a long-lasting blockage of the Strait of Hormuz could have a more profound impact on global food prices.

"Over time, the risk could manifest differently, with high fertilizer prices forcing farmers to substantially cut application rates or switch to less fertilizer-intensive crops," the World Bank said. "This could lower future crop yields, curtail food supplies, and further raise prices."

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

April 28, 2026 09:44 ET (13:44 GMT)