"The worst moments have yet to come"! Oil prices fluctuate wildly, and global trade may face a new round of shocks.

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Sharp oil price fluctuations are creating new risks for global commodity trade, and the worst effects may not yet have appeared.

According to the Financial Times, the latest analysis from the independent trade monitoring agency Global Trade Alert (GTA) indicates that if Middle East conflicts continue to disrupt the oil market, global commodity trade growth will slow significantly by the end of next year. GTA's model shows that if oil price volatility remains at current levels, global trade growth will be dragged down by about 1.1 percentage points by the end of 2027.

Simon Evenett, founder of GTA and trade expert at IMD Business School in Lausanne, Switzerland, warned: "Persistent fuel price volatility will slow global trade growth, and the impact can take up to 19 months to fully materialize. The worst times may still be ahead."

This assessment poses a serious challenge to the World Trade Organization (WTO)'s forecast from March this year. The WTO previously expected global commodity trade to grow by 1.9% in 2026 and to rebound further to 2.6% in 2027.

Violent oil price swings, volatility nearly 60% higher than pre-war

Since the US and Israel launched strikes against Iran on February 28 this year, international oil prices have experienced large fluctuations.

Brent crude prices rose from about $70 per barrel at the onset of the conflict to a peak of nearly $120; then, after news of diplomatic progress, fell back to $86; but as negotiations to reopen the Strait of Hormuz stalled, oil prices surged again last week to over $126.

After the US and Israel strikes, Iran announced it would block the Strait of Hormuz, cutting off about 20% of global oil supply. The US then imposed reverse blockades on ships entering and leaving Iranian ports. GTA data shows that current oil price volatility is nearly 60% higher than pre-war levels, standing between the two scenarios set by its model.

Volatility is more destructive than high prices

GTA's analysis revealed a key conclusion: for global trade, oil price instability is more damaging than the absolute price level.

"A world with expensive but stable oil prices does less harm to trade than a world of sharply fluctuating oil prices. What undermines commodity trade is the volatility of oil prices, not the price itself," the analysis points out.

The reason is that prolonged high oil prices increase costs for manufacturing export countries (such as Japan and the Eurozone), but also increase revenues for major commodity exporters, partially offsetting each other. Extreme price fluctuations, however, lead to renegotiations of shipping contracts, forced depletion of inventories, and dampen consumer confidence in key markets. These effects take months to gradually filter through to trade data.

In the worst-case scenario, Africa and the Middle East bear the brunt

GTA's model uses two previous major price shocks as references: one, a scenario where volatility rises by 25%, comparable to the energy crisis following the Russia-Ukraine conflict; two, a scenario where volatility doubles, similar to the peak of the 2008 commodity crash.

In the worst-case scenario, Africa and the Middle East are hit hardest, with trade growth dragged down by over 8 percentage points; China’s growth is cut by nearly 3 percentage points, about triple the impact on the US. Japan and the Eurozone also face pressure from slowing trade growth. In contrast, Emerging Asia and Latin America currently do not show a clear impact.

Shipping data has not yet reflected the pressure, but lag effects warrant caution

Currently, some market indicators have not fully reflected the risks above. Data from supply chain analysis agency Drewry shows that container freight rates on major routes between Asia and Europe/North America are roughly unchanged compared to a year ago, bolstered by weak demand.

However, Simon Evenett stresses that the model shows oil price volatility effects have significant lag, with transmission taking up to 19 months. This means today’s relatively stable shipping data does not rule out risk of future declines in trade flows. In GTA's baseline scenario, if current volatility continues, global trade growth will shrink by 1.75 percentage points by the end of next year.

Risk Disclaimer and Risk ClauseThe market has risks; investments need caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their specific circumstances. Invest at your own risk. ```