Editorial Analysis | Commodity Crunch For UPSC IAS Current Affairs Preparation

Table of Contents

Context

Commodity prices have seen a huge rise after the invasion of Ukraine by the Russian forces.

The Bloomberg Commodity Index, with a rise of 13%, saw its biggest weekly rise since 1960.
Global commodity prices, as measured by the Bloomberg Commodity Index, have risen by over 60% since the start of 2021.
The price of Brent crude oil reached $120 per barrel, the highest in the last 10 years.
There are fears that the drop in the supply of essential commodities such as oil, metals, and agricultural goods could impact the global economy and supply chain which is recovering from the pandemic shock.

Editorial Analysis For UPSC IAS Current Affairs Preparation

The conflict between Russia and Ukraine has caused disruptions to the global supply chain.
The traders are not willing to buy oil and other commodities from Russia fearing that the sanctions imposed by Western governments would impact their business.
The United States and its European allies are taking measures to dent Russia’s economy by removing Russian banks off the SWIFT payment messaging system and freezing Russia’s foreign reserves.
There are logistical troubles in moving commodities from war zones.
Exports from the have been impacted.
- In 2020 Russia produced nearly 12% of the world’s oil and around 16% of the world’s natural gas.
- Russia also produced about 50% of the world’s palladium (a main component in making catalytic converters and semiconductors).
- Ukraine accounts for about 12% of global wheat exports and 13% of global corn exports.
Disruptions in such significant commodity supplies can affect global commodity prices.

Editorial Analysis For UPSC IAS Current Affairs Preparation

The commodity prices have been rising significantly since 2021 after the lockdowns were lifted by governments and businesses were allowed to open up.
- The supply of goods was limited and this scarcity caused higher prices.
The pandemic also saw major global central banks inject massive amounts of funds into their economies.
- This led to an increase in the demand for all goods and services and caused their prices to rise.
Experts feel that the policies in several countries to replace fossil fuels with renewable energy is also a possible reason behind the increase in commodity prices.
- The emphasis on renewable energy, has discouraged investors from investing in the production of traditional fossil fuels.
The suppliers from the rest of the world have failed to increase their production to make up for the loss of output in Russia and Ukraine.
- For example: The Organisation of the Petroleum Exporting Countries (OPEC), has not made any efforts to increase its output despite multiple requests from worldwide.

Editorial Analysis For UPSC IAS Current Affairs Preparation

The impact on the commodity supply chain would be greater the longer the war lasts.
Cutting off Russia’s economy from the rest of the world also affects businesses and traders that depend on Russia.
- For Example: Germany relies highly on Russia’s energy supplies.
The struggling global economy and rising commodity prices poses a risk of stagflation, which is marked by high price inflation and low growth.