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Potential ‘Dual Shock’ in Global Commodity Markets as Middle East Conflict Adds to Ongoing Challenges

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Potential ‘Dual Shock’ in Global Commodity Markets as Middle East Conflict Adds to Ongoing Challenges

A recent conflict in the Middle East, coupled with disruptions caused by the Russian invasion of Ukraine, has raised concerns about the impact on global commodity markets, warns the World Bank’s latest Commodity Markets Outlook. While the global economy is better equipped to handle an oil-price shock than in the 1970s, the convergence of these geopolitical challenges could push commodity markets into uncharted territory.

The initial assessment of the conflict’s impact on commodity markets suggests that the effects will be limited if the conflict remains contained. Under the World Bank’s baseline forecast, oil prices are expected to average $90 a barrel in the current quarter, with a decline to an average of $81 a barrel next year due to a slowdown in global economic growth. Overall, commodity prices are projected to fall by 4.1% in the following year, and agricultural and base metal prices are also expected to decrease.

Thus far, the Middle East conflict has had limited effects on global commodity markets, with minor increases in oil prices and minimal movement in agricultural and metal prices. However, if the conflict escalates, the outlook could quickly change.

The report outlines three risk scenarios based on historical experiences since the 1970s. The effects would depend on the extent of disruption to oil supplies. In a “small disruption” scenario, with a global oil supply reduction of 500,000 to 2 million barrels per day, oil prices could increase by 3% to 13% initially, reaching a range of $93 to $102 a barrel.

In a “medium disruption” scenario, equivalent to the Iraq war in 2003, where the global oil supply is curtailed by 3 million to 5 million barrels per day, oil prices might surge by 21% to 35%, initially ranging from $109 to $121 a barrel. A “large disruption” scenario, similar to the Arab oil embargo in 1973, could lead to a global oil supply reduction of 6 million to 8 million barrels per day, causing a substantial price hike of 56% to 75%, reaching between $140 and $157 a barrel.

“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s—Russia’s war with Ukraine,” said Indermit Gill, the World Bank’s Chief Economist. “If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades—not just from the war in Ukraine but also from the Middle East.”

Higher oil prices, if sustained, can lead to increased food prices, potentially exacerbating food insecurity. Governments need to remain vigilant to prevent the situation from worsening, and developing countries should take steps to manage potential headline inflation increases. Trade restrictions, such as export bans on food and fertilizer, should be avoided as they can intensify price volatility and food insecurity. Instead, improving social safety nets, diversifying food sources, and enhancing food production and trade efficiency are recommended.

In the long term, countries can enhance their energy security by accelerating the transition to renewable energy sources, which can help mitigate the impact of oil-price shocks. Despite the challenges posed by these geopolitical events, the report highlights that the global economy has made significant progress in reducing its dependence on oil and improving its ability to manage such shocks.

intralogistics

SCALLOG is Supported by the Intralogistics Specialist SPAN to Accelerate its Development in the Middle East.

As part of its international expansion strategy, SCALLOG announces the signing of a commercial agreement with SPAN, a renowned player in the optimization and automation of distribution centers in the Near and Middle East.

During the Dubai World Expo where French innovation shines, SCALLOG agreed to enter into a partnership agreement with recognized intralogistics expert SPAN to market their “Goods to Man” robotic solutions in the Middle East, particularly in Egypt and the Arabian Peninsula, the United Arab Emirates, and Saudi Arabia. It marks SCALLOG’s desire to develop in a market with strong development potential, in search of innovative solutions to build the logistics of the future by capitalizing on a regional base, expertise in logistics, numerous references and a long-term relationship with SPAN. As Olivier Rochet, CEO of SCALLOG tells us: “We are pleased to partner with an intralogistics expert like SPAN who will bring our value proposition to the fastest-growing markets in the Middle East. A “made in France” robotic logistics solution, highly flexible and scalable, that automates and optimizes order picking, with agility and resilience, and with a constant focus on reducing costs and lead times.


An extremely heterogeneous and competitive market in search of innovation.

As in Europe, the Covid-19 epidemic in the Middle East and Arabian Peninsula has accelerated changes in buying behavior and triggered a boom in e-commerce. According to the latest Market Research Feedback study commissioned by Tiktok, 90% of the users of this social network in Saudi Arabia, 83% in the United Arab Emirates, and 79% in Egypt have significantly increased their online shopping habits in 2020. In order to meet the new omnichannel requirements for consumers, the distribution centers in these countries must now rationalize and automate their logistics operations to increase productivity and accelerate their throughput while limiting their labor requirements.

Hoda Daniel, Strategy and Communication Director at SPAN, explains to us the specific features of the market: “The Middle East is a heterogeneous market, as diverse as the countries it comprises. Today, three countries stand out in terms of investment and the deployment of intralogistics resources: Egypt, the United Arab Emirates, and Saudi Arabia. However, they each have their own criteria in terms of regulation, infrastructure, etc… Companies in these countries are therefore looking for a local partner, an expert in intralogistics, who perfectly understands their specific needs, provides tailored solutions and builds long-term relationships, just like SPAN.”

A leading player in intralogistics in the Middle East

Founded in 1989, SPAN is a key player in the modernization of intralogistics in distribution centers, in terms of advice and technological solutions. With a team of over 370 associates and a presence in Dubai, Doha, Abu Dhabi, Riyadh and Beirut, the company has unrivaled experience in its market with projects completed in over 30 countries across all sectors of activity. In addition, it is well known for its wide range of automation solutions, from the most traditional to the most innovative, for optimizing all warehouse operations.

Walid Daniel, CEO of SPAN, comments, “Faced with the numerous upheavals caused by the health crisis, from the impact on demand to the changes in buying habits, coupled with the instability in our region, we are now witnessing a fragmentation of the intralogistics market. In this context, we wanted to expand our technological offer of mobile robots and shelving, more flexible and less expensive than traditional handling systems, in order to respond to the growing demand for agility and efficiency from our clients in the face of a new economic situation, namely a recovery with many uncertainties.”

Three key factors motived SPAN’s choice to endorse and market SCALLOG’s solutions, in addition to cultural similarities and common values: the technological reliability of the robotic solution proved in the field in Europe and transparently described in a technological roadmap, a value-added approach which means technology is used to optimize processes and a perfect understanding of operational requirements in order to build “tailor-made” solutions for clients.

Walid Daniel, CEO of SPAN, adds: “We are excited to add SCALLOG technology to our offer which moves us fully into intralogistics 4.0, combining automation, robotics, and data intelligence. This new offer guarantees our clients more agility and flexibility in their processes to adapt to changes and be creative in their business”.

Remi Badaroux, Partners Network Manager, concludes: “With SPAN, combining dual expertise, consulting and integration, our ambition, based on SCALLOG robotic solutions, is to quickly bring value to warehouses to enhance the customer experience and the competitive edge of businesses in the Middle East.

The two partners anticipate the first deployments of SCALLOG solutions in the first half of 2022.