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Who are the winners and losers from higher oil and commodity prices?

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Who are the winners and losers from higher oil and commodity prices?

Millions of people depend on subsidized bread in Egypt
Reports
Economy News - Baghdad


You might think that the world has made its way out of the Coronavirus pandemic, it might just be good news for governments and economies.

However, the rise in the prices of energy, minerals, and the resulting crops highlights the strengths of some and the weaknesses of others.

Oil has jumped 75% since the beginning of last November with the start of major economies vaccinating their residents and reopening their doors after the pandemic led to the closure of factories and the suspension of aircraft.

Copper, used in everything from cars to washing machines to wind turbines, is trading at levels last seen a decade ago, and food prices have jumped every month since May last year.

The rise was a boon for exporters, as the influx of funds is a welcome relief to energy giants such as Saudi Arabia and Russia, as their leadership faces domestic challenges that must be addressed.

But there are always two sides to trade. Some countries that depend on imports are feeling the pressure in the bond and currency markets.

The rise in fuel prices cost the head of the Brazilian state oil company a loss of his job, and prices led India - the third largest importer of crude in the world - to call on the "OPEC +" alliance to increase oil production, and the inflation rate in Turkey rose to more than 15%.

Goldman Sachs and some of its Wall Street competitors are talking about a super-bullish cycle for new commodities. This raises concerns of more harmful inflation in the future, and richer countries are not immune either.

In the United Kingdom, the government is backtracking on increasing the gasoline tax so as not to anger drivers exhausted by the pandemic-induced lockdown.

In the United States, Texas oil drilling companies and corn belt farmers (in the US Midwest, where the corn crop is used to produce methane) could benefit, although others, including tech billionaires, come under pressure.

Elon Musk appealed to mining companies to extract more nickel, a metal he needs to make batteries for electric cars for Tesla.

Winners

The lockdowns and decline in commodities last year have weighed on Australia, which experienced its first recession in nearly three decades.

But the government could see unexpected gains in 2021. Sales of iron ore, which is its largest export, hit a record last December, while wheat sales are close to the same level; Livestock farmers are struggling to keep up with the demand for beef.

The Australian dollar has performed better than any other major currency since the end of last November, rising 5% against the US dollar.

Not everything is easy to navigate; The diplomatic row has caused China to ban Australian goods ranging from charcoal to copper, syrup, and lobster (known as lobster).

However, iron ore is excluded from the ban, because Beijing cannot obtain enough steel components anywhere.

This helped ensure that the trade war cost Australia only about $3 billion last year, a small sum for a country whose shipments to China ballooned from about $5 billion a year at the start of the century to $120 billion.

The relative strength of Chile, the world's largest copper producer, was also evident in the financial markets. The peso is the only major currency in Latin America that rose against the dollar during the past three months, and it was among the most prosperous currencies in the world.

The pandemic has pitted the country against a threat, as it has suffered months of violent demonstrations due to social injustice and the rising cost of living.

The virus then turned global trade on its head, and posed the biggest economic challenge to Chile since its return to democracy three decades ago, and copper prices plummeted.

The deflation did not last long, as Chinese factories returned to work after the Lunar New Year holiday, and with red metal prices rising above $4 a pound for the first time in nearly a decade, Chile's financial conditions began to improve, and copper exports reached $3.9 billion in February, an increase of 42.% For the previous month.

The same can be said for Zambia, which relies on copper for nearly 80% of export earnings. The country was in desperate need of money after it became the first country in Africa to default on Eurobonds after the outbreak of the pandemic.

President Edgar Longo faces his re-election battle in August, and is trying to obtain a bailout from the International Monetary Fund, restructure Chinese loans, and stop rising food prices, causing inflation to accelerate to 22%.

The state bought Glencore's domestic operations in January at a price that seems more and more affordable, and global investors are becoming more optimistic, and Zambia's dollar debt has risen the most this year among the nearly 75 emerging markets tracked by Bloomberg Barclays indices.

All the oil-producing countries suffered in the past year, but Iraq emerged among them; Its economy has declined by about 11%, more than any other major oil exporter, according to the International Monetary Fund.

The government was unable to pay teachers' and civil servants' salaries on time, and Iraqis took to the streets to protest against power cuts, dilapidated hospital services, dilapidated roads, and a lack of jobs.

The situation caused problems for "OPEC", of which Iraq is the second largest oil producer. Other members, including Saudi Arabia, criticized Baghdad for failing to cut production sufficiently, while the organization tried to support prices.

With the recovery of the crude oil market, Iraq's monthly financial revenues rose to $5 billion from about $3 billion in the second quarter of 2020.

It is still far below what is needed to balance the state budget, but there is clear relief.


Losers

China may be a big producer of everything from oil and zinc to food, but it is also the most important commodity buyer, and was almost single-handedly responsible for the last super-rise that ended nearly a decade ago.

The rapid recovery of the world's second largest economy from the outbreak of the Coronavirus epidemic is one of the main reasons for the high prices of energy, minerals and agricultural commodities this time.

The rise could only continue until now, before Chinese President Xi Jinping and the ruling Communist Party intervened.

The issue of food security and pork prices appeared prominently during the annual parliamentary ceremony in China - the National People's Congress - this month.

The government announced a five-year roadmap to boost crop and livestock production.

As the largest buyer of wheat in the world, and as a net importer of oil; Egypt suffers badly whenever the price of basic commodities rises. It is also politically sensitive. Because millions of people depend on subsidized bread.

The Arab Spring uprisings erupted a decade ago, in part because of the increase in food costs, which led to the ouster of President Hosni Mubarak from the power he had ruled for so long.

So far, the government of President Abdel Fattah El-Sisi has managed to stem inflation.

Egypt is trying to protect itself from rising oil costs by buying more hedge contracts in the market, and foreign investors are still buying up local bonds.

But GDP will rebound by only 2.9% this year, according to a Bloomberg survey of analysts, which is about half the level expected for the global economy.

Rising food and fuel prices have already sparked social unrest in Pakistan. Opposition parties held nationwide rallies last year to demand that Prime Minister Imran Khan resign. His government responded by increasing the salaries of state employees by 25% last month.

However, the pressure has rarely subsided, with Khan narrowing to victory in a vote of confidence in Parliament this month.

The economic impact of business closures and social restrictions to limit the spread of the virus will only worsen if goods continue to rise, in addition to the import bill for Pakistan, which produces barely any oil or minerals of its own.

If big countries like Egypt and Pakistan are struggling in a commodity boom, then there is no need to think about smaller places on the map.

The Dominican Republic may be the largest economy in the Caribbean, but its GDP is barely greater than the state of "New Hampshire", and high fuel prices hit before the main tourism sector has a chance to recover from the pandemic.

The country with a population of 11 million people is highly dependent on imports.

Other than gasoline, diesel and vehicle fuel, it has to receive shipments of natural gas, coal and fuel oil to meet the bulk of power generation.

It has responded to the previous boom in commodity prices with food subsidies, which may be difficult this time given its onerous financial resources.

The country's dollar bonds have slipped by 9% this year, making it one of the worst performing emerging market countries.

Number of observations 117 Date of addendum 03/13/2021

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