The rise in oil prices may affect the global economy. An important institution is sounding the alarm
The institution forecasts a decline in economic growth and an increase in inflation if the situation on energy markets does not improve.
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The bank presented a detailed analysis of threats in the latest “Regional Economic Update” report. EBRD experts point out that prolonged disruptions in chemical and metal supply chains will further deepen the negative effects on the global economy.
“The upward pressure on the prices of crude oil and natural gas benefits exporters of raw materials and, at the same time, burdens importers. Because energy importers vastly outnumber exporters, global economic growth could fall by at least 0.4 percentage points and inflation could rise by more than 1.5 percentage points if the price of oil remains above $100. per barrel for an extended period of time and significant disruptions will persist in chemical and metals supply chains,” the report says.
The institution announced revising growth forecasts for the regions it serves. The downward revision could reach a maximum of 0.4 percentage points when the EBRD publishes its next forecasts in June. The condition for such a scenario is that energy prices remain at an increased level.
Alarming state of gas stocks in the EU
The bank paid particular attention to the alarming condition of European gas storage facilities. “EU gas stocks are significantly lower than at this time of year in previous years, close to levels last seen in February 2022, before gas supplies from Russia were cut off. As a result, gas prices may remain high for some time even if the conflict ends quickly, as European and Asian buyers rush to replenish stocks and it will take weeks to resume LNG production,” the document said.
Analysts emphasize that the race for raw materials between European and Asian customers will maintain pressure on the prices. The process of rebuilding liquefied natural gas production capacity requires several weeks, which will further extend the time for the situation to normalize.
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The Strait of Hormuz is crucial for fertilizer trade
The EBRD expects a significant increase in fertilizer prices. The institution notes that about 25-35 percent global trade in raw materials for fertilizer production passes through the Strait of Hormuz. Countries importing fertilizers from the Persian Gulf region are particularly vulnerable to disruptions.
Kenya imports about 31 percent. total fertilizer imports from the Gulf Cooperation Council countries. In the case of Turkey, this share is approximately 13%. Experts warn that problems with the availability of fertilizers may translate into an increase in food prices.
Lebanon, Jordan and Egypt are in greatest danger
The bank has identified the countries most sensitive to the negative effects of conflict. “In summary, taking into account the immediate disruptions caused by the conflict, energy imports, the need for fertilizer and food imports, remittances from the Gulf Cooperation Council, and the fiscal capacity to absorb increases in energy and food prices, Lebanon, Jordan, Iraq, Egypt, Ukraine, Mongolia, Senegal, Tunisia, Moldova, Kenya, Turkey and North Macedonia are among the most affected economies in EBRD regions“, we read in the report.
The total impact of the war on the economy will depend on the duration of the conflict and the extent of damage to energy infrastructure. The bank estimates that the effects are likely to persist after the end of hostilities. The direct negative impact on GDP growth from energy costs, fertilizer and staple food prices, supply chain disruptions, tourism and remittances from Gulf Council countries will be compounded by higher inflation. Additional pressure will come from increased burdens on government budgets and tighter financing conditions in response to rising inflation.
Geopolitical fragmentation will weaken energy markets
The EBRD expects that in the longer term, the conflict may result in greater emphasis on energy security. The bank noted that increasing geopolitical fragmentation and recent conflicts have exposed the fragility of energy markets.
The European Bank for Reconstruction and Development was established in 1989 and began operating in 1991. The main purpose of establishing the EBRD was to support the economic transformation process in the countries of Central and Eastern Europe – structural and sector reforms, as well as the private sector. By 2024, the EBRD has invested over EUR 190 billion in the implementation of nearly 7,000 projects. Poland is one of the bank's founding members. The institution includes over 70 countries from five continents, as well as the European Union and the European Investment Bank.
