World Bank Group has in its Commodity Markets Outlook report warned that 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 fertilisers, which rely on natural gas as a production input, have been the largest since 2008. “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 fertilisers,” said Indermit Gill, the World Bank’s Vice President for Equitable Growth, Finance, and Institutions. “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.”
Energy prices 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 and will also moderate in the following years. Nevertheless, 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. 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.
“Commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine,” said Ayhan Kose, Director of the World Bank’s Prospects Group, which produces the Outlook report. “The resulting increase in food and energy prices is taking a significant human and economic toll—and it will likely stall progress in reducing poverty.
