By Maxwell Nkansah*
According to the World Bank’s newest Commodity Markets Outlook study, Brent crude oil prices are predicted to average $100 per barrel in 2022, the highest level since 2013 and a 40 percent raise over 2021. This is due to commerce and production disruptions caused by the war.
Prices are predicted to moderate to $92 per barrel in 2023, which is still significantly above the five-year average of $60. Natural-gas prices (European) are anticipated to be twice as high in 2022 as they were in 2021, while coal costs will be 80% higher, both at all-time highs.
“As a result of the war in Ukraine, commodity markets are suffering one of the greatest supply shocks in decades,” said Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the Outlook report.
“The ensuing rise in food and energy prices is wreaking havoc on people and businesses, and it’s likely to stymie poverty reduction efforts.” Higher commodity prices worsen the world’s already high inflationary pressures.”
The conflict in Ukraine has thrown commodity markets for a loop, causing global patterns of trade, production, and consumption to shift in ways that will keep prices at historically high levels until 2024, according to the research.
Over the last two years, energy prices have risen at the fastest rate since the 1973 oil crisis. The major price rises since 2008 have been for food commodities—of which Russia and Ukraine are large producers—and fertilizers, which rely on natural gas as a production input.
Fast forward to 2022, when energy prices are predicted to increase by more than 50% before dropping in 2023 and 2024. Non-energy prices, such as agriculture and metals, are expected to rise over 20% in 2022 and then moderate in the years after that.
Despite this, commodity prices are likely to stay significantly higher than the five-year average. Prices could be considerably higher and more unpredictable than they are now in the event of a lengthy war or increased sanctions against Russia.
“Overall, this amounts to the largest commodities shock we’ve faced since the 1970s,” said Indermit Gill, Vice President of the World Bank for Equitable Growth, Finance, and Institutions.
The shock is being exacerbated, as it was before, by an increase in restrictions on food, fuel, and fertilizer trade.”
“Stagflation has begun to loom as a result of these developments.” “Policymakers should seize every chance to boost domestic economic growth while avoiding acts that hurt the global economy,” he added.
Wheat prices are expected to rise by more than 40% this year, hitting an all-time high in nominal terms. Developing economies that rely on wheat imports, particularly from Russia and Ukraine, will be put under strain.
Metal prices are expected to rise by 16 percent in 2022 before leveling down in 2023, although they will remain high. “Commodity markets are under great pressure,” said John Baffes, a Senior Economist with the World Bank’s Prospects Group.
“This will have long-term consequences.” The sudden increase in input prices, such as energy and fertilizers, may result in a drop in food output, especially in developing nations. Reduced input consumption will have an impact on food production and quality, as well as food availability, rural incomes, and poor people’s livelihoods.”
Special Focus: The Effects of Ukraine’s War on Commodity Markets. The report’s Special Focus section delves into the war’s influence on commodity markets in great detail. It also looks at how commodities markets have reacted in the past to comparable shocks. For at least two reasons, the impact of the war could persist longer than earlier shocks, according to the report.