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▲ El Niño, Global Warming, International Oil Prices, Food / AI-generated image
Just as the shock of international oil prices seemed to be easing, Citigroup warned that El Niño could bring a new impact of up to $7 trillion to the global economy.
According to financial media outlet MarketWatch on June 26 (local time), Citigroup economists stated in a Thursday report that another supply shock could be on the horizon, even as signs of an easing energy supply shock from the Middle East emerge. The analysis team led by Nathan Sheets, a New York-based Citigroup economist, stated, “While one supply shock subsides, another could be just around the corner.”
Citigroup believes that El Niño could damage the global economy for years by impacting agriculture, infrastructure, and productivity. El Niño is the warm phase of the El Niño-Southern Oscillation (ENSO) in the tropical Pacific, accompanied by high temperatures and heavy rainfall, increasing the risk of drought in significant parts of North America, South America, Asia, Africa, and Australia.
Past cases also heighten the warning level. Citigroup pointed out that past El Niño cycles caused significant economic losses, citing academic estimates that the El Niño from 1997 to 1998 resulted in approximately $5.7 trillion in losses. Citigroup rated this El Niño as the most economically destructive on record.
The U.S. National Oceanic and Atmospheric Administration (NOAA) sees a more than 95% probability that El Niño will begin in the second quarter and continue until March of next year. Furthermore, the probability of a very strong El Niño occurring by the end of 2026 is presented as 63%. In its base scenario, Citigroup analyzed that a strong El Niño could cause losses of $3 trillion to $5 trillion over five years, which corresponds to 2.7% to 3.2% of global GDP. In a super El Niño scenario, losses could increase to $7 trillion, or 6.4% of global GDP.
Recent variables that have shaken the global economy include tariff policies, an aging population, slowing productivity, and the closure of the Strait of Hormuz due to the Middle East conflict, leading to an energy shock. However, Citigroup assessed that the Middle East conflict shows signs of reaching an inflection point as a preliminary memorandum of understanding between the U.S. and Iran triggered a 60-day negotiation period. Citigroup projects Brent crude prices to average around $75 per barrel in the second half of the year. While this is $15 higher than pre-war expectations, it added that the current system could allow for increased Iranian oil exports.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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