The current energy crisis differs from the oil shock of the 1970s, the Bank for International Settlements (BIS) warned on Monday in an analysis that examines the risk of contagion to agricultural products and industry as central banks battle against inflation.
“Current events are often compared to the oil shocks of the 1970s, but the global economy is very different today,” explain Fernando Avalos and Wenqian Huang, economists for the BRI in a study published on the sidelines of this institution’s quarterly report. considered the central bank of central banks.
Natural gas and renewables are now playing a much larger role in power generation, leading to “new challenges”, they say, due to the interaction between oil and agricultural markets through biofuels, “non-existent” at the time.
While the prices of agricultural raw materials have come down somewhat since the start of the war in Ukraine, a “large and persistent” increase in oil prices could, however, also push up the prices of crops used to produce ethanol or biodiesels.
Corn is a major component of ethanol production, BIS economists note. In the United States alone, ethanol has taken up 40% of corn production on average over the past five years, they explain. And since the mid-2000s, the prices of corn and oil have therefore evolved “in tandem”, they observe. Rising oil prices incentivize more ethanol, which increases demand for corn and pushes its prices higher.
But this pressure can also quickly affect other agricultural raw materials, such as soybeans, which compete with corn for cultivated land. Corn and soybeans are also used for livestock feed, so “continued disruptions in global energy markets can spill over to drive up prices for a wide range of agricultural commodities”, they warn. .
Unlike the 1970s, oil now weighs much less heavily in electricity generation. But natural gas has gained in importance, its consumption having doubled in thirty years, also note the economists of the BIS. Shocks to natural gas are therefore likely to have a “substantial” impact on electricity prices and, by extension, on industry, which represents on average “more than 40%” of total consumption on a scale world.
Restrictions on Russian energy exports, they say, are “thus likely to keep energy prices high”. They could, however, “accelerate the green transition, and thus reduce the dependence of the world economy on fossil fuels”, they believe.