The World Bank has warned that the conflict in Ukraine will result in the “largest commodity shock” since the 1970s.
According to a new forecast, the conflict’s disruption will result in massive price increases for goods ranging from natural gas to wheat and cotton.
According to Peter Nagle, a co-author of the report, the price hike is “starting to have very large economic and humanitarian effects.”
“Households all over the world are experiencing a cost-of-living crisis,” he said.
“We’re especially concerned about the poorest households because they spend a larger percentage of their income on food and energy, making them particularly vulnerable to this price spike,” the World Bank’s senior economist added. According to the World Bank, energy prices are expected to rise by more than 50%, increasing household and business 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 largest 23-month increase in energy prices since the 1973 oil price hike,” when tensions in the Middle East sent prices soaring, occurred between April 2020 and March this year. Similarly, oil prices are expected to remain high into 2024, with a barrel of Brent Crude, the benchmark measure, expected to average $100 this year, resulting in widespread inflation.
Russia produces about 11% of the world’s oil, the third largest share, but “disruptions resulting from the war are expected to have a lasting negative effect,” according to the report, as sanctions force foreign companies to leave and access to technology is limited.
Although Russia currently supplies 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 supplies from other countries. Many foods will see steep price increases, according to the World Bank’s commodity outlook. Food prices 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 see a 20% increase, oils will see a 29.8 percent increase, and chicken will see a 41.8 percent increase. These increases 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 key ingredient in many processed foods – according to S&P Global.
Other raw materials, such as fertilizers, metals, and minerals, are also expected to rise in price. Timber, tea, and rice are among the few commodities expected to decrease in price.
According to the note, grain and oilseed shipments from Ukraine have dropped by more than 80% as a result of the fighting, and that these lost exports “equivalent to about 10 days of world food supply” over the course of a year.
Archer Daniels Midland, one of the world’s four largest food commodity traders, 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.
Other countries, according to Mr. Nagle of the World Bank, can help solve the supply shortage caused by Ukraine’s war in the medium term. However, a predicted 69 percent increase in fertilizer prices this year means “there’s a real risk that agricultural yields will decline as farmers start to use fewer fertilizers.”