eBusiness Weekly
Martin Kadzere
Business Writer
Russia’s war with Ukraine has dealt a major shock to global commodity markets since 1973, the World Bank has said, disrupting global trade patterns, production, and consumption in ways that will keep prices at historically high levels through 2024.
According to the bank’s latest Commodity Markets Outlook report, the increase in energy prices over the past two years has been the largest since the 1973 oil crisis.
Price increases for food commodities—of which Russia and Ukraine are large producers—and fertilizers, which rely on natural gas as a production input, have been the largest since 2008.
Russia and Ukraine provide around 30 percent of the world’s wheat and barley, one-fifth of maize and over half of sunflower oil. At the same time, Russia is the world’s top natural gas exporter and the second-largest oil exporter. Russia and its neighbor Belarus export around 20 percent of the world’s fertilizers.
“Overall, this amounts to the largest commodity shock we have experienced since the 1970s,” Indermit Gill, the World Bank’s vice president for Equitable Growth, Finance, and Institutions said.
“As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers. “These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy.”
Energy prices are expected to rise more than 50 percent in 2022 before easing in 2023 and 2024.
Non-energy prices, including agriculture and metals, are projected to increase almost 20 percent in 2022 and will also moderate in the following years, the bank noted.
Nevertheless, commodity prices are expected to remain well above the most recent five-year average. In the event of a prolonged war, or additional sanctions on Russia, prices could be even higher and more volatile than currently projected.
Because of war-related trade and production disruptions, the price of Brent crude oil is expected to average US$100 a barrel in 2022, its highest level since 2013 and an increase of more than 40 percent compared to 2021. Prices are expected to moderate to US$92 in 2023—well above the five-year average of US$60 a barrel.
Natural-gas prices (European) are expected to be twice as high in 2022 as they were in 2021, while coal prices are expected to be 80 percent higher, with both prices at all-time highs.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the outlook report.
“The resulting increase in food and energy prices is taking a significant human and economic toll—and it will likely stall progress in reducing poverty. Higher commodity prices exacerbate already elevated inflationary pressures around the world,” it added.
Wheat prices are forecast to increase more than 40 percent, reaching an all-time high in nominal terms this year. That will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine. Metal prices are projected to increase by 16 percent in 2022 before easing in 2023 but will remain at elevated levels.
Already, the United Nations fears that more than 70 percent of Africa’s economies are at severe risk from Russia’s war in Ukraine.
Last week, the UN Secretary-General Antonio Guterres, who chairs the 32-member UN Global Crisis Response Group established in March this year said 41 African countries face maximum exposure to at least one emergency caused by the war.
“The war is supercharging a three-dimensional crisis – food, energy and finance – that is pummeling some of the world’s most vulnerable people, countries and economies,” Guterres warned at a virtual press conference.
Prices of food, energy, and fertilizer have risen sharply since the beginning of the war, with increasing risks of global instability, given that Russia and Ukraine are among the world’s breadbaskets, he said.
Preliminary analysis suggests nearly two billion people (about 28,5 percent of the world population) in 107 economies are exposed to at least one of the three risks.
In its World Economic Outlook, the International Monetary Fund said global economic prospects have been severely set back and inflation is set to last for longer, largely because of Russia’s invasion of Ukraine.
The IMF revised its projection for global growth to 3,6 percent in both 2022 and 2023, reflecting the direct impact of the war on Ukraine and sanctions on Russia, with both countries projected to experience steep contractions. This year’s growth outlook for the EU was also revised downward, by 1,1 percentage points, due to the indirect effects of the war.
