Commodity prices see their biggest increases in fifty years, as the conflict between Russia and Ukraine has caused major damage to the global economy, leading to new rounds of supply chain disruptions, according to an article published by the Policy Center for the new south (PCNS).
The war in Ukraine has indeed caused several significant shocks to the global economy, including the downward trend in global trade and financial integration, new rounds of supply chain disruptions and rising commodity prices. base rates, which have already led to downward revisions in economic growth projections, accompanied by higher inflation”, underlines the author of the article Otaviano Canuto, Senior Fellow at the PCNS. The commodity price shock, which has intensified since mid-2020, has already generated significantly higher price levels in 2022, according to the World Bank’s “Commodity Markets Outlook” report, published on April 26. , which estimated that prices will remain higher in the medium term, reports the same source.
With regard to the outlook for commodity markets, it will depend on the duration of the war in Ukraine, the sanctions imposed on Russia and the severity of the disruptions in commodity flows, given that Russia and Ukraine are major suppliers of energy, fertilizers, grains and metals. Russia is the world’s largest exporter of natural gas, nickel and wheat, while Ukraine is the largest exporter of sunflower oil, the author recalls, adding that “it is no coincidence that these products have experienced particularly marked increases since the beginning of the conflict in Ukraine”.
Several countries, including the United States, Canada and the United Kingdom, have already announced a ban or phase-out of Russian oil imports, while private buyers have also pledged to reduce their purchases of Russian oil. . Regarding the outlook for the global economy, the PCNS publication returns to the report of the International Monetary Fund published on April 19 which suggests that the anticipation of a drop in demand for fossil fuels is due, among other things, to the energy transition that has reduced global investments in oil and gas by around 20% over the last three or four months.
Global upstream investment in the oil and gas sector peaked at 0.9% of global GDP in 2014, falling to less than 0.5% of global GDP in 2019, then falling further during the pandemic. For its part, the price of Brent reached an average of 116 dollars/barrel in March, which had not been seen since 2013. In this sense, the World Bank forecasts that average oil prices will rise on average to $100/barrel this year, before dropping smoothly to $92 in 2023.
And to note that in March, natural gas prices in Europe were almost seven times higher than a year earlier, while coal prices in several regions of the world also tripled due to expected disruptions in Russian exports. natural gas and coal. The post-pandemic demand recovery and tight supply conditions were already having an upward effect, but the new jumps have made the rise in energy prices over the past two years the largest increase in the past two years. of the last half century, since the oil shock of 1973.