## COMMODITy SPECIAL FEATURE MaRKET DEVELOPMENTs aND ThE REaL-TIME IMPaCT OF gEOPOLITs ON ENERgY PRICEs ## Source details **Canonical URL:** [COMMODITy SPECIAL FEATURE MaRKET DEVELOPMENTs aND ThE REaL-TIME IMPaCT OF gEOPOLITs ON ENERgY PRICEs](https://www.imf.org/-/media/files/publications/weo/2026/october/english/commodityspecialfeature.pdf) ## Other formats - [Markdown version](/-/media/files/publications/weo/2026/october/english/commodityspecialfeature.pdf.md) - [Structured JSON version](/-/media/files/publications/weo/2026/october/english/commodityspecialfeature.pdf.json) --- ### Commodity price developments: food, beverages, and seafood - Grain prices rose 5.3 percent on weather-related supply concerns and resilient demand. - Higher fuel and transportation costs added upward pressure across grain markets. - Seafood prices fell sharply, led by a 16.0 percent decline in salmon prices as abundant farmed supply weighed heavily on spot markets; prices for other fish and for shrimp also moved lower. - Beverage prices increased 19.2 percent, led by an 83.6 percent increase in cocoa prices due to adverse weather in Côte d’Ivoire and Ghana renewing supply concerns. - Coffee prices increased 8.0 percent after heavy rainfall in Brazil’s Minas Gerais state delayed harvesting and increased concerns about crop quality. - Although cocoa prices remained elevated, expectations of a market surplus this year are likely to limit further gains. ### Fertilizer and input-price dynamics - The IMF fertilizer index declined 10.5 percent since March. - Phosphate prices were up by 22.4 percent due to supply disruptions. - Prices of nitrogen-based fertilizers dropped 31.5 percent since March, as higher Chinese exports and weaker seasonal demand across the Northern Hemisphere weighed on urea prices. - Upside risks to food prices stem from elevated fertilizer prices ahead of the Southern Hemisphere planting season, which could reduce input use, lower yields, and tighten grain supplies in 2027. ### Price projections and risk drivers - Food prices are projected to increase 5.0 percent in 2026 and 2.4 percent in 2027. - Beverage prices are expected to fall 21.5 percent in 2026 and increase 3.2 percent in 2027 due to El Niño. - A stronger-than-expected El Niño event could further disrupt weather conditions in key producing regions. - Tariffs and geopolitical tensions could put additional upward pressure on commodity prices. ### Motivation for real-time geopolitical risk analysis in energy markets - In March 2026, the war in the Middle East effectively closed the Strait of Hormuz, stranding in the Persian Gulf oil and liquefied gas equal to about 20 percent of world consumption. - Fears of supply disruptions can exert upward price pressure separate from realized supply losses; oil prices increased by about 10 percent in January and February before the start of the war amid rumors of an impending US attack on Iran. - The policy response differs by shock origin: price increases driven by stronger demand support monetary tightening, while price increases driven by supply disruptions or geopolitical risk create trade-offs for policymakers (Blanchard and Galí 2007; Woodford 2003; Natal 2012; Caldara and others 2026). ### The Commodity Price Tracker: high-frequency SVAR framework - The Commodity Price Tracker is a high-frequency four-variable structural vector autoregression (SVAR) model (Gomez-Gonzalez and others 2026) that decomposes oil and European gas (TTF) price fluctuations into four shocks: current demand, forward-looking demand, current supply disruption, and forward-looking supply disruption (geopolitical supply risk). - The model uses daily financial and newspaper-based data and is estimated with Bayesian methods using the BEAR toolbox (Dieppe, Legrand, and van Roye 2016). - Sample coverage: June 1, 2007 (October 4, 2013, for gas) to May 29, 2026. - Daily SVAR variables: adjusted front-month energy price, 13-month futures price, returns from an equity index (world index for oil; European index for gas), and the Geopolitical Risk Threats (GPRT) index from Caldara and Iacoviello (2022). - Identification combines instrumental variables (VIX, OVX, gold prices, front-month oil prices) with parsimonious sign and relative magnitude restrictions based on economic theory. - For gas, the SVAR uses a narrower European equity index and daily forecast temperature anomalies as an instrumental variable for current demand. ### Key empirical findings on shock transmission to prices and financial markets - Both forward-looking and current demand shocks increase front-month and futures energy prices and equities. - Current demand promotes backwardation (bigger increase of front-month than 13-month futures); forward-looking demand shifts the whole futures curve upward. - Current supply shocks promote backwardation and reduce equities, consistent with tighter physical markets and lower firm profits. - For gas: - Current demand shocks do not affect European equities because short-term demand is driven by weather, which has little bearing on the broader stock market. - The impact of forward-looking demand shocks on front-month TTF prices is not statistically significant. - The response of gas prices to current demand is more persistent than for oil, highlighting the role of gas inventories in smoothing shocks. - Geopolitical supply risk shocks increase energy prices but their effect on equities is not statistically different from zero, suggesting limited real-economy impact relative to actual supply disruptions. ### Macroeconomic effects from local projections (aggregated monthly shocks) - Daily shocks are aggregated to monthly frequency and analyzed with local projections (Jordà 2005) for a panel of oil-importing advanced economies; gas shocks are analyzed for the five largest European economies. - Scaling: shocks are normalized so that the front-month price increases 1 percent on the shock’s impact. - All oil shocks are inflationary, but magnitude and persistence vary by shock: - Forward-looking demand, current demand, and actual supply shocks that increase front-month monthly oil prices by 1 percent all increase CPI by roughly 0.06 percent after one year. - The effect of the geopolitical supply risk shock on inflation is short-lived, with prices back to their preshock levels within six months to a year. - Labor-market effects: - For oil importers, demand-driven oil shocks, especially forward-looking demand, decrease the unemployment rate persistently, with unemployment below its preshock levels almost two years after the shock. - Negative supply shocks that increase front-month oil prices by 1 percent increase the unemployment rate (magnitude and persistence described in the local projections figures). ### Geopolitical supply risk versus actual supply disruptions - The geopolitical supply risk shock has no statistically significant impact on the unemployment rate. - The relatively muted impact of geopolitical supply risk on activity is consistent with the model in Kilian, Plante, and Richter (2026), which shows that geopolitically induced changes in the probability of an oil production shortfall (higher geopolitical supply risk) are not a major driver of macroeconomic fluctuations. - The response of the unemployment rate to geopolitical supply risk is also muted when the sample is restricted to before November 2022, when ChatGPT was launched, ensuring that the AI boom in US financial markets is not acting as a confounding factor during a period of high geopolitical risk and relatively strong labor markets. ### Inflationary effects: oil and natural gas - An oil shock normalized so that the oil price rises by 1 percent increases the price level by about 0.04 percentage point one year after the shock. - The inflationary pressures of gas shocks in Europe vary across shocks: - A shock normalized so that the TTF price increases by 1 percent increases the price level by about 0.05 percent after one year when driven by forward-looking demand or supply shocks. - The same 1 percent TTF shock increases the price level by roughly 0.08 percent after one year when driven by current demand and geopolitical supply risk shocks. - All shocks, and particularly geopolitical supply risk, have more persistent effects on inflation than their oil counterparts, reflecting the greater persistence of natural gas prices following gas shocks and highlighting the role of inventories in smoothing fluctuations. - The responses of the unemployment rate to gas shocks are relatively muted, as natural gas is used mainly for heating and cooling, whereas oil is used primarily for transportation (IEA 2025). ### Decompositions during recent conflicts (illustrative findings) - Decompositions of front-month oil and gas prices were performed for Russia’s invasion of Ukraine in 2022 and the 2026 war in the Middle East. - During the war in Ukraine: - TTF prices quadrupled in six months, reflecting a major supply disruption for European gas markets, whereas the oil disruption was minimal even though oil prices spiked. - The contribution of geopolitical supply risk to oil prices has been more than twice as large as that of actual supply. - Supply emerges as a key driver of gas price movements, reflecting prominent gas supply disruptions in that conflict. - During the 2026 Middle East war: - Both oil and gas supplies have been heavily disrupted, and fears of a worsening geopolitical situation have been paramount. - Geopolitical supply risk and actual supply contributed roughly equally to oil price movements, consistent with the greater severity of actual supply losses. - Geopolitical supply risk has put substantial upward pressure on gas prices, followed by supply, in line with elevated uncertainty, shipping affected by the closure of the Strait of Hormuz, and damage to Qatari facilities. - Demand exerted upward pressure on prices at the beginning of the war as refineries and electrical firms likely competed for the scant crude and liquefied natural gas available; as the war continued, the decomposition shows a lower demand contribution, signaling demand compression. - Key takeaway: realized energy shortages do not eliminate the influence of geopolitical risk; heightened geopolitical supply risk continues to exert upward pressure on energy prices during geopolitical crises, so not all the observed increase in energy prices during these crises should be interpreted as evidence of physical scarcity. ### Policy implications and recommendations - Effective policy responses to energy-related shocks require identifying the source of energy price movements in real time. - Policymakers should distinguish between price increases driven by demand shocks and those driven by supply shocks, and, among supply shocks, between increases due to geopolitical tensions and those caused by actual supply disruptions. - Specific implications noted: - Oil-related geopolitical supply risk typically has only short-lived effects on prices and no measurable effect on unemployment. - Supply disruptions and forward-looking demand shocks generate larger and more persistent macroeconomic effects. - Because shocks usually arise simultaneously, interpreting higher energy prices solely as evidence of physical scarcity can lead to inappropriate policy responses. - The Commodity Price Tracker offers a real-time framework for distinguishing among commodity price shocks and supporting more timely and effective policy responses; the framework is flexible enough to be extended to other commodities in the future. *World Economic Outlook: Commodity Special Feature, International Monetary Fund.* ### 5.3 percent on weather-related supply concerns and ### COMMODITy SPECIAL FEATURE MaRKET DEVELOPMENTs aND ThE REaL-TIME IMPaCT OF gEOPOLITs ON ENERgY PRICEs ### Commodity price developments: food, beverages, and seafood - Grain prices rose 5.3 percent on weather-related supply concerns and resilient demand. - Higher fuel and transportation costs added upward pressure across grain markets. - Seafood prices fell sharply, led by a 16.0 percent decline in salmon prices as abundant farmed supply weighed heavily on spot markets; prices for other fish and for shrimp also moved lower. - Beverage prices increased 19.2 percent, led by an 83.6 percent increase in cocoa prices due to adverse weather in Côte d’Ivoire and Ghana renewing supply concerns. - Coffee prices increased 8.0 percent after heavy rainfall in Brazil’s Minas Gerais state delayed harvesting and increased concerns about crop quality. - Although cocoa prices remained elevated, expectations of a market surplus this year are likely to limit further gains. ### Fertilizer and input-price dynamics - The IMF fertilizer index declined 10.5 percent since March. - Phosphate prices were up by 22.4 percent due to supply disruptions. - Prices of nitrogen-based fertilizers dropped 31.5 percent since March, as higher Chinese exports and weaker seasonal demand across the Northern Hemisphere weighed on urea prices. - Upside risks to food prices stem from elevated fertilizer prices ahead of the Southern Hemisphere planting season, which could reduce input use, lower yields, and tighten grain supplies in 2027. ### Price projections and risk drivers - Food prices are projected to increase 5.0 percent in 2026 and 2.4 percent in 2027. - Beverage prices are expected to fall 21.5 percent in 2026 and increase 3.2 percent in 2027 due to El Niño. - A stronger-than-expected El Niño event could further disrupt weather conditions in key producing regions. - Tariffs and geopolitical tensions could put additional upward pressure on commodity prices. ### Motivation for real-time geopolitical risk analysis in energy markets - In March 2026, the war in the Middle East effectively closed the Strait of Hormuz, stranding in the Persian Gulf oil and liquefied gas equal to about 20 percent of world consumption. - Fears of supply disruptions can exert upward price pressure separate from realized supply losses; oil prices increased by about 10 percent in January and February before the start of the war amid rumors of an impending US attack on Iran. - The policy response differs by shock origin: price increases driven by stronger demand support monetary tightening, while price increases driven by supply disruptions or geopolitical risk create trade-offs for policymakers (Blanchard and Galí 2007; Woodford 2003; Natal 2012; Caldara and others 2026). ### The Commodity Price Tracker: high-frequency SVAR framework - The Commodity Price Tracker is a high-frequency four-variable structural vector autoregression (SVAR) model (Gomez-Gonzalez and others 2026) that decomposes oil and European gas (TTF) price fluctuations into four shocks: current demand, forward-looking demand, current supply disruption, and forward-looking supply disruption (geopolitical supply risk). - The model uses daily financial and newspaper-based data and is estimated with Bayesian methods using the BEAR toolbox (Dieppe, Legrand, and van Roye 2016). - Sample coverage: June 1, 2007 (October 4, 2013, for gas) to May 29, 2026. - Daily SVAR variables: adjusted front-month energy price, 13-month futures price, returns from an equity index (world index for oil; European index for gas), and the Geopolitical Risk Threats (GPRT) index from Caldara and Iacoviello (2022). - Identification combines instrumental variables (VIX, OVX, gold prices, front-month oil prices) with parsimonious sign and relative magnitude restrictions based on economic theory. - For gas, the SVAR uses a narrower European equity index and daily forecast temperature anomalies as an instrumental variable for current demand. ### Key empirical findings on shock transmission to prices and financial markets - Both forward-looking and current demand shocks increase front-month and futures energy prices and equities. - Current demand promotes backwardation (bigger increase of front-month than 13-month futures); forward-looking demand shifts the whole futures curve upward. - Current supply shocks promote backwardation and reduce equities, consistent with tighter physical markets and lower firm profits. - For gas: - Current demand shocks do not affect European equities because short-term demand is driven by weather, which has little bearing on the broader stock market. - The impact of forward-looking demand shocks on front-month TTF prices is not statistically significant. - The response of gas prices to current demand is more persistent than for oil, highlighting the role of gas inventories in smoothing shocks. - Geopolitical supply risk shocks increase energy prices but their effect on equities is not statistically different from zero, suggesting limited real-economy impact relative to actual supply disruptions. ### Macroeconomic effects from local projections (aggregated monthly shocks) - Daily shocks are aggregated to monthly frequency and analyzed with local projections (Jordà 2005) for a panel of oil-importing advanced economies; gas shocks are analyzed for the five largest European economies. - Scaling: shocks are normalized so that the front-month price increases 1 percent on the shock’s impact. - All oil shocks are inflationary, but magnitude and persistence vary by shock: - Forward-looking demand, current demand, and actual supply shocks that increase front-month monthly oil prices by 1 percent all increase CPI by roughly 0.06 percent after one year. - The effect of the geopolitical supply risk shock on inflation is short-lived, with prices back to their preshock levels within six months to a year. - Labor-market effects: - For oil importers, demand-driven oil shocks, especially forward-looking demand, decrease the unemployment rate persistently, with unemployment below its preshock levels almost two years after the shock. - Negative supply shocks that increase front-month oil prices by 1 percent increase the unemployment rate (magnitude and persistence described in the local projections figures). *Source: Commodity Special Feature, International Monetary Fund, October 2026.* ### 0.04 percentage point one year after the shock. The ### Conclusion ### Geopolitical supply risk versus actual supply disruptions - The geopolitical supply risk shock has no statistically significant impact on the unemployment rate. - The relatively muted impact of geopolitical supply risk on activity is consistent with the model in Kilian, Plante, and Richter (2026), which shows that geopolitically induced changes in the probability of an oil production shortfall (higher geopolitical supply risk) are not a major driver of macroeconomic fluctuations. - The response of the unemployment rate to geopolitical supply risk is also muted when the sample is restricted to before November 2022, when ChatGPT was launched, ensuring that the AI boom in US financial markets is not acting as a confounding factor during a period of high geopolitical risk and relatively strong labor markets. ### Inflationary effects: oil and natural gas - An oil shock normalized so that the oil price rises by 1 percent increases the price level by about 0.04 percentage point one year after the shock. - The inflationary pressures of gas shocks in Europe vary across shocks: - A shock normalized so that the TTF price increases by 1 percent increases the price level by about 0.05 percent after one year when driven by forward-looking demand or supply shocks. - The same 1 percent TTF shock increases the price level by roughly 0.08 percent after one year when driven by current demand and geopolitical supply risk shocks. - All shocks, and particularly geopolitical supply risk, have more persistent effects on inflation than their oil counterparts, reflecting the greater persistence of natural gas prices following gas shocks and highlighting the role of inventories in smoothing fluctuations. - The responses of the unemployment rate to gas shocks are relatively muted, as natural gas is used mainly for heating and cooling, whereas oil is used primarily for transportation (IEA 2025). ### Decompositions during recent conflicts (illustrative findings) - Decompositions of front-month oil and gas prices were performed for Russia’s invasion of Ukraine in 2022 and the 2026 war in the Middle East. - During the war in Ukraine: - TTF prices quadrupled in six months, reflecting a major supply disruption for European gas markets, whereas the oil disruption was minimal even though oil prices spiked. - The contribution of geopolitical supply risk to oil prices has been more than twice as large as that of actual supply. - Supply emerges as a key driver of gas price movements, reflecting prominent gas supply disruptions in that conflict. - During the 2026 Middle East war: - Both oil and gas supplies have been heavily disrupted, and fears of a worsening geopolitical situation have been paramount. - Geopolitical supply risk and actual supply contributed roughly equally to oil price movements, consistent with the greater severity of actual supply losses. - Geopolitical supply risk has put substantial upward pressure on gas prices, followed by supply, in line with elevated uncertainty, shipping affected by the closure of the Strait of Hormuz, and damage to Qatari facilities. - Demand exerted upward pressure on prices at the beginning of the war as refineries and electrical firms likely competed for the scant crude and liquefied natural gas available; as the war continued, the decomposition shows a lower demand contribution, signaling demand compression. - A key takeaway from these decompositions: realized energy shortages do not eliminate the influence of geopolitical risk; heightened geopolitical supply risk continues to exert upward pressure on energy prices during geopolitical crises, so not all the observed increase in energy prices during these crises should be interpreted as evidence of physical scarcity. ### Policy implications and recommendations - Effective policy responses to energy-related shocks require identifying the source of energy price movements in real time. - Policymakers should distinguish between price increases driven by demand shocks and those driven by supply shocks, and, among supply shocks, between increases due to geopolitical tensions and those caused by actual supply disruptions. - Specific implications noted: - Oil-related geopolitical supply risk typically has only short-lived effects on prices and no measurable effect on unemployment. - Supply disruptions and forward-looking demand shocks generate larger and more persistent macroeconomic effects. - Because shocks usually arise simultaneously, interpreting higher energy prices solely as evidence of physical scarcity can lead to inappropriate policy responses. - The Commodity Price Tracker offers a real-time framework for distinguishing among commodity price shocks and supporting more timely and effective policy responses; the framework is flexible enough to be extended to other commodities in the future. --- _Source: https://www.imf.org/-/media/files/publications/weo/2026/october/english/commodityspecialfeature.pdf_