The Russia-Ukraine crisis has the potential to keep food and energy prices at high levels through to the end of 2024,
The World Bank said in its latest Commodity Markets Outlook report released on 26 April, the increase in energy prices over the past two years has been the largest since the 1973 oil crisis.
Similarly, the 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.
World Bank’s vice president for Equitable Growth, Finance, and Institutions Indermit Gill noted that overall, the world has been experiencing the largest commodity shock 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.”
“Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” he said.
According to the bank, energy prices are expected to rise more than 50 percent this year before easing in 2023 and 2024 while non-energy prices, including agriculture and metals, are projected to increase almost 20 percent in 2022 before moderating in the following years.
Nevertheless, the commodity prices are expected to remain well above the most recent five-year average.
The World Bank said that in the event of a prolonged war, or additional sanctions on Russia, prices could be even higher and more volatile than currently projected.
It said because of war-related trade and production disruptions, the price of Brent crude oil is expected to average US$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 US$92 in 2023 — well above the five-year average of US$60 a barrel.
Meanwhile, Ayhan Kose, director of the World Bank’s Prospects Group said commodity markets are experiencing one of the largest supply shocks in decades because of the war in Ukraine.
“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. Higher commodity prices exacerbate already elevated inflationary pressures around the world,” said Kose.
The war in Ukraine has delivered a major shock to energy and food commodity markets. The shock comes on top of pandemic-related supply chain disruptions and a stronger-than-expected rebound in demand, the report said.
It added that food shortages and inflation are negatively impacting the poor and may worsen inequality. “Higher food prices will exacerbate food insecurity in many countries, with particularly severe impacts on the poorest households. Over the next year, many low income countries in Northern Africa, Asia, and the Near East face a risk of widespread hunger and malnutrition as a result of reduced supply from
Ukraine and Russia.”