Here comes the big shock of commodities – The World Bank released a new forecast last week that predicted major economic disruption from the COVID-19 pandemic and shutdowns that will continue for several years. The international financial institution said the conflict in Ukraine will also play a part in what will become the “biggest commodities shock” since the 1970s.
Commodity shock: the worst energy crisis since 1973
The recent forecast indicates that the recent increase in energy prices is comparable to the oil crisis of 1973. The crisis saw OPEC launch an oil embargo after President Richard Nixon withdrew the United States from the standard -gold, and the United States provided military aid to Israel during a conflict with Syria and Egypt.
When OPEC launched the embargo, it drove up prices and caused economic damage in OPEC countries. The Fed repeatedly raised and lowered interest rates to control prices, but prices remained high, inflation continued to rise, and the recession deepened.
The cost of energy has hit millions of American homes this year, with the price of gasoline at the pump breaking records. The price of liquefied natural gas (LNG) has also soared as buyers shun Russian fuel and seek alternative sources. Reuters reported that the cost of materials related to natural gas supply has risen 20% over the past two years, with gas compressors now 30% more expensive. Metals needed for LNG storage and distribution are also in short supply as a direct result of the Russian invasion of Ukraine, which could lead to a further 10% cost increase.
What the commodity shock means
Peter Nagle, co-author of the latest World Bank report, told the BBC that households “across the world” are being hit by the cost of living crisis.
“We are particularly worried about the poorest households as they spend a greater share of their income on food and energy, so they are particularly vulnerable to this price spike,” he said.
According to the report, energy prices are expected to increase by more than 50%, with the biggest increase being the price of natural gas in Europe.
If the forecast is correct, prices will start falling in the fall of 2023 but will remain 15% higher than they were the previous year.
The World Bank also predicted the worst rise in food prices since the 2008 crash.
The Ukrainian crisis will have a substantial impact on global food supplies, as Russia and Ukraine are among the world’s largest corn suppliers. Beyond an immediate cut in corn exports from the two Eastern European countries, suppliers aiming to make up the shortfall face rising fertilizer costs, driving prices even higher.
Jack Buckby is a British author, counter-extremism researcher and journalist based in New York. Reporting from the UK, Europe and the US, it strives to analyze and understand left and right radicalisation, and reports on Western government approaches to pressing issues of today. His books and research papers explore these themes and offer pragmatic solutions to our increasingly polarized society.