KIEV - BY MIDDLE EAST INSIDER - Oct 14,2023

It is likely that a high oil price will continue for the next few years due to increased sanctions on the supply of Russian oil, coal, and petroleum products. The ongoing war in Ukraine has also impacted the production and supply of wheat, corn, barley, and edible oil from the country. Looking at the long-term effects of the conflict, it is clear that energy security and food insecurity will be heavily impacted if the conflict continues and spreads to other parts of Europe.

 

In the Indo-Pacific region, tensions between China and the US and its allies over Iran, Taiwan, and the disputed islands of the South China Sea could lead to an outbreak of hostilities. Additionally, the presence of over a million forcibly displaced nationals of Myanmar in refugee camps along the coastal areas of Bangladesh is raising tensions in the region and increasing the possibility of cross-border incursions and insurgency. If hostilities break out between the countries surrounding the Bay of Bengal, it is possible that external naval forces may become involved in a regional conflict.

 

Low- and middle-income economies that rely on the import of fossil fuels and food are increasingly concerned about the negative effects of climate change, migration resulting from both natural and man-made disasters, and the recurrence of pandemics.

 

These economies are facing an impending crisis as a result of the high cost of energy, raw materials, and essential commodities. Many experts believe that high oil prices will continue in the long term due to the complexities of the Ukraine war. Diplomatic efforts to end the conflict have been unsuccessful, making a resolution seem unlikely. It is anticipated that the war will continue, disrupting the supply of Ukrainian grains and Russian oil.

 

In the near future, there are potential threats of an Israeli attack on Iranian nuclear facilities and the Russo-Ukraine conflict spilling over into neighboring countries such as Poland, Lithuania, and Moldova. These possibilities loom on the horizon and could have serious implications for import-dependent economies.

According to analysts, there are several factors behind the high oil price regime. In 2020, low oil prices resulted from decreased demand and production levels during the pandemic. The disruption of economic and industrial activity in many European and Asian economies due to the pandemic caused demand for energy to drop, resulting in oil prices plummeting to $16.34 per barrel in April 2020. This led to a supply shortage, which caused the price of oil to spike.

 

However, between May and August 2020, there was a surge in demand, with oil prices fluctuating between $40 and $47 per barrel. Oil prices fell back to $40 in October but began to steadily rise, peaking at $68 per barrel in February 2021. Demand for energy began to increase towards the end of 2021 as many countries lifted travel restrictions and ended lockdowns, and an economic recovery gained momentum. 

 

By the end of November 2021, oil prices had dropped to $69 a barrel but began to rise sharply again, peaking at $117 per barrel in mid-June 2022.

The most recent peak in oil prices occurred on June 10, 2022, when prices reached $122 per barrel. This was due to geopolitical tensions resulting from the Ukraine war and the resulting disparity in supply and demand.

 

The Economy Forecast Agency (EFA) predicts that the average oil price for the second half of 2023 will be $114 per barrel. The forecast for the average oil price in 2023 is expected to increase to $146 per barrel, with a low of $124 in February and a peak of $183.4 in December. The average oil price for the first half of 2024 is expected to be even higher at $185.94 per barrel, with a peak of $200 in the second half of the year. 

 

In 2024, the lowest oil price is expected to be around $181.73 per barrel in April, with a peak of $219.73 per barrel in August. In 2025, the average oil price forecasted is $193.31 per barrel, and in 2026, it is expected to be $191.43 per barrel.

The combination of climate change and geopolitical risks presents a high risk, low reward scenario that poses significant dangers to both domestic and regional stability. The rising sea levels due to climate change increase the likelihood of inundation of coastal areas, which in turn creates a large number of internally displaced persons (IDPs) and climate refugees. Relocating and rehabilitating these climate refugees puts an extra burden on governments that are already struggling to cope with the high prices of energy, raw materials, and essential commodities.

 

Food security is a critical issue, especially in countries with a large population. The shortage of agricultural inputs such as fertilizer and diesel is expected to continue for the remainder of this year and most of 2023, leading to a downtrend in overall agricultural output. This shortage in supply of agricultural inputs will increase the demand for imported food grains and edibles, exacerbating the issue of food insecurity.

The shortage of wheat in the global market due to various factors has led to a sharp rise in the price of wheat and other food grains. This price surge is expected to continue, affecting food security in low- and middle-income nations that depend heavily on imports. The World Bank has warned that the price of food may rise by 14 percent globally, pushing an additional 110 million people into poverty. 

 

The International Monetary Fund (IMF) has also issued a warning about the inflationary pressures on food prices, which could result in higher inflation rates and lower economic growth in many countries. These warnings are particularly significant for countries with limited resources to address the rising food prices and ensure food security for their populations.

 

The impact of rising food prices on vulnerable populations is already being felt. In 2021, the UN estimated that the number of people facing acute food insecurity would rise to 270 million, up from 149 million in 2019. Many low-income countries are struggling to cope with the double impact of the pandemic and rising food prices. The situation is compounded by the disruptions to supply chains and distribution channels, which make it difficult to transport and distribute food to those who need it most.

 

Addressing food security in the current context requires a multi-faceted approach that includes increasing domestic food production, improving agricultural productivity and efficiency, and promoting sustainable and resilient food systems. International cooperation and support from developed countries are also essential to address the immediate crisis and build long-term resilience against future food supply shocks.

 

The global food crisis caused by the Russo-Ukraine war and other factors is having severe impacts on vulnerable populations in the Middle East, Asia, and Africa. The shortage of wheat and other essential food items is leading to rising prices and food insecurity, and exacerbating existing humanitarian crises in countries like Yemen, Syria, Ethiopia, and Afghanistan. 

 

The United Nations and other international organizations are working to find solutions, including the establishment of safe corridors for the transport of food supplies and the provision of emergency aid to those in need. However, much more needs to be done to address the root causes of the crisis and ensure that all people have access to safe and nutritious food. This will require cooperation and coordination between governments, international organizations, and civil society, as well as investments in sustainable agriculture, climate resilience, and poverty reduction.

 

The shortage of chemical fertilizers is likely to have a significant impact on the agricultural productivity of the countries mentioned, as they heavily rely on the supply of fertilizers from Russia and Ukraine. This may lead to a decline in crop yields and an increase in food prices, ultimately affecting the food security of these countries. Additionally, the shortage of fertilizers may also lead to soil degradation, making it difficult to achieve sustainable agriculture in the affected regions.

 

Furthermore, the impact of the shortage of fertilizers may be felt beyond the agricultural sector, as the use of fertilizers is also important for the production of biofuels and the manufacturing of various industrial products. This may lead to higher costs for these products, ultimately affecting the overall economy of the countries that rely on imported fertilizers.

 

Given the importance of chemical fertilizers for global food security, it is crucial for governments and international organizations to take measures to ensure the availability of fertilizers. This may involve increasing domestic production, exploring alternative sources of fertilizers, and improving the efficiency of fertilizer use.

 

It is important to note that a negotiated settlement to the Russo-Ukraine conflict would not only have economic benefits, but also humanitarian benefits. The conflict has caused the displacement of millions of people and resulted in thousands of deaths, and a peaceful resolution would be a significant step towards ending the suffering of those affected by the conflict.

 

Additionally, the conflict has wider geopolitical implications beyond just Europe, with potential ramifications for global security and stability. A peaceful resolution would help to reduce tensions and prevent the escalation of conflict between other major powers, such as the US and Russia.

 

However, as mentioned, the prospects for a negotiated settlement remain uncertain. It is possible that a resolution could be reached through the involvement of international mediators and sustained diplomatic efforts, but this would require a willingness from both sides to engage in dialogue and compromise.

 

In the absence of a negotiated settlement, the international community may need to consider other measures to address the economic and humanitarian consequences of the conflict. This could include increased aid and support for affected populations, as well as diversifying sources of key commodities such as food and fertilizer to reduce dependence on Russian and Ukrainian supplies.