The ongoing tensions in the Middle East are a cause for concern among economists, as they could jeopardize recent progress in addressing global inflation. Recent conflicts in Gaza have led to higher oil prices and increased tensions in the region. The World Bank has warned that these tensions are driving up commodity prices, particularly for oil and gold, and that the deflationary impact of lower commodity prices has ended. This could lead to higher global inflation, as interest rates may need to remain higher than expected in the coming years.
More than 200 days after the conflict in Gaza, regional tensions are still high. Indermeet Gill, Chief Economist and First Vice President of the World Bank Group, expressed concern that a major energy shock caused by the conflict could reverse progress made in reducing inflation over the past two years. If there were significant disruptions to oil supply, the price of Brent crude could rise to $92 or even $100, leading to a one percentage point increase in global inflation.
In addition to impacting inflation, the conflict in the Middle East could delay interest rate cuts and exacerbate food insecurity, which has already been on the rise due to armed conflicts and high food prices. The World Bank emphasized the need for a peaceful resolution to the tensions in the region to avoid further economic impacts.