The transition to more expensive trade patterns has begun; however, the transition to cleaner energy may be delayed.
Commodity Market Outlook Report (WB)
According to the World Bank’s latest Commodity Markets Outlook report, the Ukraine conflict has dealt a major shock to commodity markets, altering global patterns of trade, production, and consumption in ways that will keep prices at historically high levels until the end of 2024.
The rise in energy prices over the last two years has been the most significant since the 1973 oil crisis. Food commodities, of which Russia and Ukraine are large producers, and fertilizers, which rely on natural gas as a production input, have seen the largest price increases since 2008.
The report urges policymakers to act quickly to protect citizens and the global economy. Instead of food and fuel subsidies, it advocates targeted safety-net programmes like cash transfers, school feeding, and public work programmes. Investing in energy efficiency, including building weatherization, should be a priority. It also urges countries to speed up the development of zero-carbon energy sources like renewables.
Energy prices are expected to double in 2022 before falling in 2023 and 2024. Agriculture and metals prices are expected to rise nearly 20% in 2022 before falling in the following years. Nonetheless, commodity prices are expected to remain well above the five-year average. In the event of a prolonged war or additional sanctions against Russia, prices could be even higher and more volatile.
Prices for Brent crude oil are expected to reach $100 per barrel in 2022 due to war-related trade and production disruptions. From $92 per barrel in 2023, prices are expected to fall to $60 per barrel. With both prices at all-time highs, natural gas prices in Europe are expected to double by 2022.
Indermit Gill, World Bank’s Vice President for Equitable Growth
“This is the biggest commodity shock since the 1970s.” As before, the shock is being exacerbated by increased trade restrictions on food, fuel, and fertilizer, said Indermit Gill, World Bank Vice President for Equitable Growth, Finance and Institutions. “These developments raise the prospect of stagflation.” Achieve domestic economic growth while avoiding actions that harm the global economy.
Ayhan Kose, Director of World Bank’s Prospects Group
For Ayhan Kose, Director of the World Bank’s Prospects Group, the Ukraine conflict has caused a “decade-long supply shock.” Prices of food and energy are rising, causing significant human and economic costs that will almost certainly halt poverty reduction efforts. “Higher commodity prices exacerbate global inflationary pressures.”
The Effect of the Ukraine War on Commodity Markets
One consequence of rising prices is that other fossil fuels can no longer be substituted for the most affected ones. Rising natural gas prices have increased fertilizer prices, which in turn has increased agricultural prices. Less long-term measures to reduce demand and encourage alternative supply sources have been prioritized in policy responses so far.
War Is Causing More Expensive Trade Patterns
The energy trade will be diverted in a big way Some countries, for example, are looking for coal in remote areas. Major coal importers may increase Russian imports while others reduce demand. The report notes that coal is bulky and difficult to transport. Gas and oil are diverted as well.
Transition to cleaner energy, delayed
Higher prices may disrupt or delay the transition to cleaner energy sources. Several countries plan to increase fossil fuel production. Costly metals like aluminium and battery-grade nickel are driving up the cost of renewable energy.
Edited By: Khushi Thakur
Published By: Mohammed Anees