A rough start to 2024 as conflict continues

The war between Israel and Hamas in Gaza is another stark reminder of the impact of conflict on the price of global commodities such as food and oil. While oil and food prices have not yet been majorly (if at all) affected by the ongoing conflict in the Middle East, the World Bank recently released its predictions for their trade should the war escalate. The scenarios imagined by the World Bank are based on historical episodes involving regional conflicts since the 1970s, Euro News explains.

In the first scenario, described as the least disruptive outcome should the conflict in the region escalate, global oil supply would be reduced by the production of 500 000 to two million fewer barrels per day, pushing prices up between 3% and 13% to a range of US$93 (about R1 736) to US$102 (R1 904) a barrel. This is a major contrast to the current levels of around US$80/barrel (R1 494), and would see a major increase at the pumps in South Africa, particularly as the rand continues to depreciate against the dollar. Of course, this will also have an effect on food production costs, as the price of fuel directly influences the cost of fertilisers, the transport of inputs, the cost of actual production and the cost related to transporting food or animals to the market.

In its medium-disruption scenario (think the Iraq War in 2003, says Euro News), the World Bank says oil prices could increase to between US$109 (R2 035) and US$121 (R2 260) a barrel as production is reduced by three million to five million barrels per day.

In a large-disruption scenario (e.g. the Arab oil embargo of 1973), prices could reach between US$140 (R2 614) and US$157 (R2 932) a barrel, due to a reduction of six million to eight million barrels per day. This is almost double what a barrel of oil is currently costing traders.

The expected increase in food price inflation that would accompany this will also see an increase in food insecurity across the world, according to Ayhan Kose, the World Bank’s deputy chief economist and director of the Prospects Group. Developing nations, which generally already experience widespread food insecurity, are likely to be hardest hit.

Of course, the war in the Middle East comes amid the ongoing war in Ukraine. Not much has been reported on this conflict in the wake of the Israel-Hamas war, but it is worth noting that Russia recently indicated that it had no interest in reigniting the Black Sea Grain Initiative, which allowed safe passage for Ukrainian exports of grains across the Black Sea corridor. As such, the Russia-Ukraine war is still very much alive, and will continue to have an impact on global commodity trade.

With ongoing conflicts in Israel and Ukraine, flooding in KwaZuluNatal and a major earthquake in Japan, 2024 so far has been a busy and difficult year for farmers locally and abroad. Let’s hope the rest of 2024 will be much less so! Thankfully, all indications are that South Africa’s farmers will have a good year, despite possible dry conditions.

But with general elections looming in South Africa and the US this year,

I suspect 2024 still holds many surprises for us here and abroad.