How Does War Affect Commodities?

One of the ways in which we can monitor the changes in an economy and the extent to which these changes might affect other economies is through the careful analysis of commodities. Commodities range from oil to corn, gas to coffee to silver and gold (and formerly even onions!) A commodity is used to measure the impact of events on a nation’s economy as the commodity has a fixed value that can be used to benchmark. However, events occur worldwide that have an effect on the price and value of commodities, especially in such an integrated global supply chain.

But what could affect the price of a commodity? One of the largest impacts on a commodity is a war. The more countries involved and the longer it lasts, the greater the impact on the world.

 

The Civil War and Cotton

Prior to the Civil War in the United States, the cotton trade was booming. This was in part due to the rise in the Southern states’ use of slavery, while the so-called free states up North were strongly opposed to it. Following a series of violent clashes known as Bleeding Kansas – caused by the debate over whether new state Kansas would be a slave state or a free state – Civil War broke out, impacting cotton. Indeed, in 1861, cotton went from $0.10/lb to $1.69/lb. As the US was exporting to Manchester and Liverpool, this effectively caused a crash in the UK’s economy as well as in the warring US. We then took our cotton from Egypt – and when the US was at peace again, we effectively crashed the Egyptian economy by not using them as our cotton providers any more. If you’re thinking of embarking on a trading journey using a mobile app, the thought of trading commodities such as cotton may not be as glamorous as some of the flashier ones, but there is no denying how integral it is to our lives – and to manufacturing – globally.    

The Second World War and Wheat

Conversely to our reliance on the US’s cotton negatively impacting the UK economy, our lack of production of wheat during the Second World War led to the UK economy feeling the squeeze due to our reliance on the US produced grain. In fact, wheat prices grew from $0.98/bushel to $2/bushel. The demand in the US helped their economy, which ultimately assisted with bringing the war to an end. While oil may be deemed the most political of commodities, there is a strong argument for wheat too. The French Revolution began due to bread shortages and rising prices, while the 2010 Arab Spring began as a bread riot. The ancient Roman expression, “Panem et circenses,” or ‘bread and circuses’ holds true today and shows just how important commodities such as wheat are, and how their impact can be felt on a global scale.  

The possibility of war is a grim outlook but, while affecting day-to-day life on the surface, it would also have a wider impact. Our global supply chain has grown vastly since the last time a major war halted it, and any such large-scale clash would likely have a strongly negative impact on almost all commodities and go on to impact almost every economy. While economies do bounce back after war, the wasted time and progress is always felt into the future.

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