A report by Bank of Baroda (BoB) has projected that global commodity prices are likely to remain elevated in the coming months, even as geopolitical tensions in West Asia show signs of easing. The report attributes this to ongoing disruptions in supply chains and adverse weather conditions that continue to threaten agricultural output.
Sharp Surge Since Late February 2026
Commodity markets have experienced a sharp surge since the outbreak of the conflict involving the US, Israel, and Iran in late February 2026. The impact has spread across energy, metals, fertilizers, food commodities, and raw materials. The World Bank's headline commodity price index rose by 30.7% between February and May 2026, reversing a 10.9% decline recorded during the same period last year. This increase was largely driven by a sharp rise in crude oil prices following disruptions in the Strait of Hormuz, a critical global shipping route.
Energy Prices Lead the Rally
Energy prices emerged as the biggest contributor to the rally, with the energy index rising 44.9% during the period. Average crude oil prices surged by 47.7%, while natural gas prices rose by 33.2%. Coal prices also increased by 10.9% as higher fuel costs pushed up transportation expenses.
Non-Energy Commodities Also Rise
Beyond energy, the report highlighted a broad-based rise in non-energy commodities. Fertilizer prices jumped 37.8%, led by a 63.2% increase in urea prices amid natural gas shortages and shipping disruptions. Metal and mineral prices rose 9.7%, driven by supply concerns and growing demand from infrastructure and clean energy sectors. Aluminium prices climbed 19.6% due to production disruptions in the Gulf region, while tin prices remained elevated because of export restrictions and strong demand from the artificial intelligence industry.
Agricultural Commodities Under Pressure
Agricultural commodities also witnessed upward pressure. The agriculture index increased by 5.7%, supported by higher prices of edible oils and grains. Soybean oil prices surged 38.5%, while wheat prices rose 14.8%. Adverse weather conditions, elevated input costs such as diesel and fertilizers, are adding to pressure on prices of grains. The report also pointed to growing demand for renewable fuels as a factor behind higher prices of soybean oil and corn, which are used in biodiesel and ethanol production, respectively.
Beverages and Raw Materials
Among beverages, tea prices rose 11.7% due to robust global demand and shipment disruptions, while cocoa prices gained 15.9% amid adverse weather conditions in major producing regions of West Africa. Raw materials such as cotton and rubber also registered significant gains of 24.5% and 16.9%, respectively. BoB attributed the rise to weather-related supply shortages and increased production costs for synthetic alternatives.
Outlook and Impact on India
Looking ahead, the report warned that commodity markets are likely to remain volatile as geopolitical uncertainty persists and climate risks intensify. Even after the war has ended, it will still take some time for supply chains to normalise and freight costs, including cost of insurance, to come down. The report added that a strong El Nino event expected this year could further affect agricultural production globally, keeping commodity prices under pressure. As a result, BoB expects India's Wholesale Price Index (WPI) inflation to average around 7-8% in FY27, with elevated global commodity prices gradually feeding into retail inflation.
