The war against Iran has triggered one of the most severe supply shortages in the history of the global energy market. This was declared by the heads of the International Energy Agency, the International Monetary Fund and the World Bank group. The three institutions have formed a coordination group to maximize their institutions’ response to the energy and economic impact of war in the Middle East.
The consequence is market volatility, but also the weakening of currencies in emerging economies and concerns about inflation expectations, which portend a tightening of monetary policies and weaker growth. This is especially true for countries most exposed to the downstream repercussions of war and those facing more limited political space and higher debt levels. Italy does not fall on its feet. According to the report prepared by the research area of Legacoop and Ipsos, pessimism is widespread and for 6 out of 10 Italians there will be a recession with the war.
Price disruption: one of the most serious global crises
The words used by the coordination group of the International Energy Agency, the International Monetary Fund and the World Bank group are full of concern. The three institutions said they had formed a coordination group to find a response to the energy and economic impact of the war in the Middle East.
An action made necessary because we are facing one of the largest supply shortages in the history of the global energy market. In a joint statement they explained that:
The war in the Middle East has caused major disruption to lives and livelihoods in the region and triggered one of the largest supply shortages in the history of the global energy market.
The impact of the crisis is considered substantial, global and highly asymmetric. This is because it disproportionately affects energy-importing countries, such as Italy (Pedro Sanchez is right in this regard) and in particular low-income ones.
Supply chains at risk
Evidence of this impact lies in the higher prices of several products. The increase in oil and gas is visible to all.
There has been a real blockage in global supply chains of:
- helium;
- phosphates;
- aluminum.
Then there are the indirect impacts, such as the increase in the cost of fertilizers or medicines. The war, in fact, is affecting global healthcare on several fronts. There is talk of a risk of shortage of medicines, even life-saving ones.
The plan of the IEA, IMF and World Bank
At the moment there is no real plan for managing the crisis. The three global institutions aim to coordinate a response mechanism that may include targeted policy advice, an assessment of potential financial needs and the related provision of financial support, including through concessional financing and risk mitigation tools.
The shared note reads as:
To ensure a coordinated response, we jointly agreed to form a group to assess the severity of impacts at country and regional levels through coordinated sharing of data on energy markets and prices, trade flows, fiscal and balance of payments pressures, inflation trends, export restrictions on key raw materials and disruption to supply chains.
The worst case scenario: Covid effect
The World Economic Forum instead interviewed four leading economists, such as Trafigura’s chief economist Saad Rahim, according to whom:
If current levels of disruption continue, we are looking at something that I don’t think we’ve ever seen before.
The climate is one of “unprecedented” economic impact, especially if you look in the long term. Expert analyzes suggest the possibility of an economic shock at Covid levels in the event of a prolonged war.
Italians also feel this concern first hand. What emerges from the FragilItalia report “War and Peace”, developed by the Legacoop and Ipsos research area, is a picture of general pessimism in the face of this scenario.
The “worst case scenario”, in fact. And more than 3 out of 4 Italians believe that the situation will worsen in the coming months and pessimism reaches even higher levels among the most fragile social groups, among women, the unemployed and the over 64s. A concern shared by the Mef, which predicts a negative impact on growth.
