The World Bank has warned that the spillover impact on global commodity prices of Russia’s invasion of Ukraine may linger for a couple of years more.
According to the Washington-based multilateral lender’s April 2022 Commodity Markets Outlook report released Tuesday night, “the war in Ukraine 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 through the end of 2024.”
“The increase in energy prices over the past two years has been the largest since the 1973 oil crisis. Price increases for food commodities—of which Russia and Ukraine are large producers—and fertilizers, which rely on natural gas as a production input, have been the largest since 2008,” the World Bank noted in a statement.
The agency projected global energy prices to increase by over half this year, although these would ease next year and in 2024.
“Because of war-related trade and production disruptions, the price of Brent crude oil is expected to average $100 a barrel in 2022, its highest level since 2013 and an increase of more than 40 percent compared to 2021. Prices are expected to moderate to $92 in 2023—well above the five-year average of $60 a barrel. Natural-gas prices (European) are expected to be twice as high in 2022 as they were in 2021, while coal prices are expected to be 80 percent higher, with both prices at all-time highs,” the World Bank said.
Agri and commodities
As for nonenergy prices like those of agricultural and metal products, the lender said these would rise by nearly a fifth this year. In particular, the war would jack up wheat prices by over two-fifths to an “all-time high in nominal terms this year,” which the World Bank said “will put pressure on developing economies that rely on wheat imports, especially from Russia and Ukraine.”
“Metal prices are projected to increase by 16 percent in 2022 before easing in 2023 but will remain at elevated levels,” the World Bank added.
“Commodity prices are expected to remain well above the most recent five-year average. In the event of a prolonged war, or additional sanctions on Russia, prices could be even higher and more volatile than currently projected,” the World Bank warned.
“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. These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” World Bank vice president for equitable growth, finance and institutions Indermit Gill said.
To address high prices, the World Bank “urges policymakers to act promptly to minimize harm to their citizens—and to the global economy” through “targeted safety-net programs such as cash transfers, school feeding programs and public work programs—rather than food and fuel subsidies.