Here Comes the Great Commodity Shock – The World Bank issued a new forecast last week that predicted major economic disruption stemming from the COVID-19 pandemic and lockdowns that will extend for several more years. The international financial institution said that the conflict in Ukraine will also play a part in what will become the “largest commodity shock” since the 1970s.
Commodity Shock: Worst Energy Crisis Since 1973
The recent forecast said that the recent increase in energy prices is on par with the 1973 oil crisis. The crisis saw OPEC launch an oil embargo after President Richard Nixon removed the United States from the gold standard, and the United States provided military aid to Israel during a conflict with Syria and Egypt.
When OPEC initiated the embargo, it drove prices up and caused economic damage in OPEC countries. The Fed raised and lowered interest rates repeatedly to control prices, but prices remained high, inflation continued to increase, and the recession grew deeper.
The cost of energy has impacted millions of American households this year, with the price of gas at the pump breaking records. The price of liquefied natural gas (LNG) has also skyrocketed, with buyers avoiding Russian fuel and looking for alternate sources. Reuters reported how the cost of materials relating to natural gas supply has risen by 20% in the last two years, with gas compressors now 30% more expensive. The metals required in storing and distributing LNG are also in short supply as a direct result of the Russian invasion of Ukraine, which could lead to an additional 10% increase in costs.
What the Commodity Shock Means
Peter Nagle, the co-author of the latest World Bank report, told the BBC that households “across the world” are being impacted by the cost-of-living crisis.
“We’re particularly worried about the poorest households since they spend a larger share of income on food and energy, so they’re particularly vulnerable to this price spike,” he said.
According to the report, energy prices are likely to increase by over 50%, with the biggest rise being seen in the price of natural gas in Europe.
If the forecast is accurate, prices will begin to drop in the fall of 2023 but will remain 15% higher than they were the year previous
The World Bank also predicted the worst rise in food prices since the 2008 crash.
The Ukraine crisis will have a substantial impact on global food supplies, as both Russia and Ukraine are among the biggest suppliers of corn in the world. Beyond an immediate reduction in corn exports from the two Eastern European countries, suppliers aiming to make up for the shortfall are facing rising costs of fertilizer – driving prices even higher.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.