Europe

Worse is yet to come: the Ukraine war will result in the largest price shock in 50 years.

The World Bank has warned that the conflict in Ukraine will result in the “biggest commodities shock” since the 1970s.

According to a new prediction, the conflict’s disruption will result in massive price increases for items ranging from natural gas to wheat and cotton.

According to Peter Nagle, a co-author of the research, the price hike is “beginning to have extremely severe economic and humanitarian implications.”

“Households all across the world are experiencing a cost-of-living crisis,” he remarked.

“We’re especially concerned about the poorest households since they spend a bigger percentage of their income on food and energy, making them particularly sensitive to price increases,” the report says.

According to the World Bank, energy prices are expected to rise by more than 50%, increasing home and corporate bills.

The most significant increase will be in the cost of natural gas in Europe, which is expected to more than double. Prices are expected to decline next year and in 2024, but they will still be 15% higher than last year.

According to the World Bank, “the highest 23-month increase in energy prices since the 1973 oil price surge,” when tensions in the Middle East pushed prices skyrocketing, occurred between April 2020 and March this year.

Similarly, oil prices are likely to continue high into 2024, with a barrel of Brent Crude, the benchmark measure, expected to average $100 this year, resulting in widespread inflation.

Russia produces around 11% of the world’s oil, the third largest share, but “disruptions stemming from the war are projected to have a permanent detrimental effect,” according to the paper, as sanctions force international companies to leave and access to technology is limited.

Although Russia presently produces 40% of the EU’s gas and 27% of its oil, European governments are working to wean their countries off of Russian supplies. This has aided in the rise of global prices by increasing demand for goods from other countries.

Wheat prices are expected to hit new highs.
Many foods will suffer severe price increases, according to the World Bank’s commodity outlook. Food costs are already at their highest level since records began 60 years ago, according to the UN Food Price Index.

Wheat prices are expected to rise 42.7 percent, setting new highs in dollar terms. Barley will see a 33.3 percent increase, soybeans will have a 20% increase, oils will see a 29.8 percent increase, and chicken will see a 41.8 percent increase. These gains are due to a significant drop in exports from Ukraine and Russia.

According to JP Morgan, the two countries exported 28.9% of global wheat before the war, and 60% of global sunflower supplies — a crucial ingredient in many processed meals – according to S&P Global.

Other basic resources, such as fertilizers, metals, and minerals, are also expected to rise in price. Timber, tea, and rice are among the few commodities predicted to decrease in price.

According to a Bank of America research report, “wheat is one of the most difficult crop exports to replace.” Poor weather conditions in North America and China are likely to worsen the impact of lower Ukrainian supply, which will continue because the spring planting season has been delayed by the fighting.

According to the note, grain and oilseed shipments from Ukraine have dropped by more than 80% as a result of the war, and that these lost exports “equivalent to nearly 10 days of world food supply” over the course of a year.

Archer Daniels Midland, one of the world’s four largest food commodity merchants, said prices are unlikely to fall any time soon.

“We expect reduced crop supplies – caused by the weak Canadian canola crop, short South American crops, and now the disruptions in the Black Sea region – to drive continued tightness in global grain markets for the next few years,” Juan Luciano said as the US firm announced a 53 percent increase in net earnings for the first three months of this year, to $1.05 billion.

Rising food costs, according to Peter Nagle of the World Bank, are having “quite severe economic and humanitarian impacts.”
Other countries, according to Mr. Nagle of the World Bank, can help ease the supply constraint caused by Ukraine’s war in the medium term. However, a predicted 69 percent increase in fertiliser prices this year means “there’s a real risk that agricultural production may drop as farmers start to use fewer fertilisers.”

“While prices are projected to peak in 2022, they are expected to remain significantly higher than originally forecast,” the World Bank report said of commodities in general.

“The future for commodity markets is strongly dependent on the duration of the war in Ukraine” and the damage it brings to supply lines, according to the report.

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