(Kitco News) If the lessons of the 1970s were to be applied to the current geopolitical situation, the commodity markets could be transformed by the war in Ukraine, according to Capital Economics.
“The experience of the 1970s suggests that the ongoing war in Ukraine and its effects on commodity prices will reshape commodity markets for years to come,” said Capital Economics commodities economist Kieran Clancy said in a report published Tuesday. The long-term consequences that stand out include demand destruction and new energy independence goals.
“Elevated prices are likely to lead to some degree of demand destruction. And further ahead, a renewed focus on energy independence in Europe and elsewhere will have longer-lived consequences for commodity demand and supply,” Clancy wrote. There are apparent similarities between what’s happening now and the oil price shock of the 1970s.
“From October 1973 to March 1974, OPEC halted exports to many Western countries as punishment for providing aid to Israel during the Yom Kippur war. Not only did oil prices surge back then, but so too did the prices of other commodities as higher energy prices raised production costs,” Clancy explained.