Business & Lobbying

World Bank forecasts war in Ukraine will cause ‘largest commodity shock’ since 1970s

Photo illustration of black and white gas station, grocery store on a grainy background with a rising red arrow
Madeline Monroe/Greg Nash/iStock
Madeline Monroe/Greg Nash/iStock

The World Bank said Tuesday that the war in Ukraine will result in the “largest commodity shock” since the 1970s and will keep prices at “historically high” levels until at least 2024.

In its Commodity Markets Outlook report, the World Bank said that conflict in Eastern Europe will mean that prices remain high in the medium term. Already prices are expected to be significantly higher in 2022 than the previous year.

It added that food prices have risen by 84 percent, the largest increase in a comparable period since 2008.

The report also forecasts a hike in energy prices, which 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, according to the report.

Ukraine and Russia supply a third of global wheat and barley exports, according to The Associated Press. They also produce more than half of the world’s sunflower seed oil, and Russia and Belarus export an estimated one-fifth of the world’s fertilizer.

The organization added that the supply of several commodities has been disrupted due to the war in Ukraine, leading to sharply higher prices, particularly for energy, fertilizers and some grains.

The report cited war-related trade and production disruptions as the primary reasons behind the high price of Brent crude oil, which it added is expected to average $100 a barrel in 2022 — its highest level since 2013 and an increase of more than 40 percent when compared to 2021 prices.

Oil prices are expected to continue to remain elevated into next year, according to the World Bank, and are expected to remain at $92 in 2023, which is above the five-year average of $60 a barrel. 

It cautioned lawmakers around the world and emphasized that in the short term “supply disruptions and higher food and energy prices will raise inflation and policymakers will need to mitigate their impact on poorer households.”

According to the report, the world could see a move to cleaner energy as a way to mitigate the price hikes in energy prices.

“Policymakers can take action to accelerate structural changes that alleviate upward pressure on energy prices, including promoting energy efficiency and incentivizing new low-carbon sources of energy production,” the report added.

Analysts said that these policies would also protect economies from “future energy price volatility” and “accelerate the transition away from fossil fuels, helping to achieve climate change goals.”

So far, however, the report noted that policy responses have focused more on tax cuts and subsidies, which “often exacerbate supply shortfalls and price pressures” than on long-term measures to reduce demand and encourage alternative sources of supply.

“Overall, this amounts to the largest commodity shock we’ve experienced since the 1970s. As was the case then, the shock is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers,” said Indermit Gill, World Bank’s vice president for equitable growth, finance and institutions.

The report comes as global food prices hit record levels amid Ukraine conflict earlier this month. According to the United Nations, 1.7 billion people in 108 developing countries are exposed to new economic shocks with higher debt levels than in 2019 and are seeing rising food and fuel prices.

Tags inflation prices Russia-Ukraine war

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