Middle East Conflict, Supply Disruptions and El Niño Pose Fresh Inflation Risks
The World Bank’s Commodity Markets Outlook, published on October 28, 2026, projects global commodity prices to rise by 23% in 2026, driven primarily by escalating geopolitical tensions in the Middle East, tightening oil inventories, disruptions to grain shipments and weather-related risks to agricultural production. Energy prices are expected to reach a four-year high, reversing three consecutive years of decline and adding to inflationary pressures across the global economy.
The report highlights that depleted oil inventories leave global markets increasingly vulnerable to further supply shocks. Meanwhile, disruptions to grain trade, the risk of an El Niño-driven decline in agricultural output, and elevated fuel and fertilizer costs could increase food prices and weaken affordability,particularly across emerging and low-income economies.
Key Commodity Price Projections
• Energy: Energy prices are projected to increase by 32% in 2026 before moderating in 2027. Brent crude is forecast to average $91 per barrel in 2026, compared with $69 in 2025, before declining to $79 in 2027. However, further escalation in the Middle East or continued damage to Russia’s oil infrastructure could tighten supplies and push prices above baseline expectations.
• Food: Food commodity prices are expected to rise by ~ 10% in 2026 and another 7% in 2027, implying a cumulative increase of ~ 18%. Disruptions to grain shipments, the threat of El Niño and higher fuel and fertilizer costs could increase agricultural production expenses, weaken food affordability and sustain inflationary pressures.
• Overall commodities: Global commodity prices are forecast to increase by 23% in 2026, followed by an anticipated 7% decline in 2027, assuming no major escalation in conflicts affecting global supplies.
Risks to the Global Economic Outlook
The World Bank warns that the outlook remains vulnerable to further supply shocks. In an adverse scenario involving an escalation of Middle East tensions, attacks on Black Sea grain shipments and a strong El Niño, Brent crude could average $105 per barrel in 2027. Food commodity prices could also rise 12% above the baseline forecast, exceeding their 2022 levels.
Such developments could intensify inflation, constrain monetary policy flexibility and weaken global
economic growth. Higher energy and food costs would disproportionately affect emerging and lowincome economies, where household budgets are more sensitive to essential commodity prices.
Equity Market and Investment Implications
For equity markets, rising commodity prices create a mixed outlook. Upstream oil producers could benefit from higher crude realizations, while oil marketing companies may face margin pressure if higher input costs are not fully passed on to consumers. Aviation, paints, chemicals, tyres and logistics companies could experience higher operating expenses, while FMCG businesses may face pressure from rising agricultural and packaging costs. For India, sustained increases in crude oil and food prices could raise the import bill, pressure the rupee, widen the current account deficit and complicate the inflation outlook.
Higher inflation could also delay monetary easing and weigh on consumption and corporate earnings.