A study by the independent monitoring organization Global Trade Alert is sounding the alarm for a significant contraction of , if disruptions in oil supplies are extended further.
To conduct the study, the researchers modeled past similar product and commodity crises, such as the coronavirus pandemic and the 2008 commodity price collapse, concluding that global trade flows will become less resilient if the war continues.
They also found that continued fluctuations in oil prices will lead to a contraction in world trade growth of 1.75% by the end of 2027, a significant drop from pre-war expectations.
Global trade is losing its resilience
According to the FT, Simon Evenett, founder of GTA and a trade expert at IMD Business School in Lausanne, Switzerland, said the conclusion the modeling leads to is that global trade flows in goods may not prove sufficiently resilient – certainly not as much as previous estimates predicted.
“We find that a sustained increase in fuel price volatility slows global trade growth, and the effects take up to 19 months to be felt. The worst may be ahead of us,” he added.
The worst-case scenarios suggested it published in March, according to which world trade would grow by 1.9% in 2026, then 2.6% in 2027, noting that if high oil prices were maintained it could reduce the growth rate in 2026 by 0.5 percentage points.
Since the start of the war, container prices on key routes between Asia and European and North American markets have remained largely unchanged from a year ago due to weak demand, according to data from supply chain analysts Drewry, the editor writes.
But Evenett warned that modeling showed the effects of oil price volatility took months to be felt, as shipping contracts were renegotiated, inventories fell and consumer confidence in key markets fell.
The two scenarios
The analysis also found that price fluctuations are far more damaging to trade than consistently higher prices, which have been shown to raise revenue for commodity exporters, offsetting any negative effects for exporters such as Japan or the Eurozone.
“A world in which oil is expensive but stable is less damaging to trade than a world in which oil prices fluctuate unpredictably. It is oil price volatility, not the price level itself, that is weakening goods trade,” the analysis found.
The modeling looked at the effects of a 25% increase in fuel price volatility over 12 months – about the same as the energy crisis that followed the start of the war in Ukraine – and a doubling of volatility, equivalent to the peak of the commodity crisis in 2008.
on February 28, which effectively closed the Straits of Hormuz, to make matters worse with the US blockade of shipping to and from Iranian ports.
In the worst-case scenario, where volatility doubles, Africa and the Middle East take by far the biggest hit to trade, more than 8 percentage points, with the hit to China almost 3 percentage points – nearly three times that of the US.
The analysis showed that the effects will not be equally severe in all regions. Emerging Asian economies and Latin America showed no noticeable impact, while China, Japan, the Eurozone and the US experienced a slowdown in trade growth along with Africa and the Middle East.
Finally, Evenett added that current oil price volatility is almost 60% higher than pre-war levels, roughly midway between the two scenarios, meaning trade growth would fall by 1.1 percentage points by the end of 2027 on current data.
Source:
