I regularly contribute to EconMacro in the field of international macroeconomic shocks that are transmitted via geopolitics, energy markets, exchange rates, and sustainable development. The relevant Reuters story to discuss in the context of my work is forecasts about strong El Niño and corresponding food price pressures, while the ongoing war with Iran increases fertilizer and fuel prices.
The main point of the Reuters story is that next year (i.e., in 2026) is likely to face a strong El Niño with hot and dry weather in Australia, Southeast Asia, and India starting in the second half of 2026. Additionally, according to the Reuters article, there might also occur some wetter weather in the United States and Latin America until the year-end. As it is clear from the discussion, the mentioned climatic factors have implications for agriculture and agricultural yields.
Furthermore, Reuters discusses the current situation about potential issues concerning fertilizer supplies and fuel prices due to the Iran war and additional problems in planting some crops such as wheat and canola in Australia, palm oil and rice in Southeast Asia, as well as rice, cotton, soybean, wheat, and rapeseed in India.
EconMacro contributes to macro perspectives and debates. In particular, my recent articles and papers more and more concentrate on the interplay of geopolitics and the economy. Specifically, the current news is illustrative in terms of some macroeconomic issues.
First, it is necessary to note that the issue discussed here (i.e., climate shocks) concerns heterogenous macroeconomic shocks. In other words, climate shocks depend on several factors such as type of the commodity impacted by the shocks, countries that experience the shocks, horizon, and so on. To elaborate, the forthcoming El Niño may affect some crops and cause an inflationary impact. However, the impacts are heterogeneous across the commodities considered.
In this context, I would like to mention our recent working paper entitled “Not All Climate Shocks Are Alike: How ENSO Impacts Oil Prices“. Specifically, we apply the Time-Varying Parameter Local Projections model to analyze impacts of El Niño-Southern Oscillation shocks on US oil spot and futures prices during the sample period from 1983:03 to 2024:10. We find that El Niño causes a decline in both spot and futures WTI oil prices, while the opposite impact holds true for La Niña shocks.
As it follows from our findings, climate-related risk discussed in the Reuters story has a rather complicated impact because Reuters assumes that El Niño damages crops and produces inflationary pressures on food prices. However, the results reported in our paper suggest that El Niño does not necessarily lead to inflation of oil prices. Indeed, the former shocks tend to be deflationary in nature, while the latter shocks produce an opposite impact.
Hence, the key finding for interpreting the story discussed in the context of our research is as follows: one should not interpret climate shocks as a simple phenomenon leading to inflation.
The next point is that the difference between our findings regarding the effects of climate shocks depends on the fact that agricultural shocks differ from energy markets in terms of transmission. Specifically, El Niño affects the former due to climate changes whereas the latter is influenced by shifts in demand and supply.
As it follows from our results, the impacts of ENSO shocks depend on event types, spatial structures, and horizons. In particular, Central-Pacific events (and especially La Niña) produce stronger inflationary shocks than Eastern-Pacific shocks.
Another issue illustrated by the Reuters story concerns compound shocks. Specifically, crop-related shock is superimposed on geopolitical and energy market shocks. This fact implies that the current potential crop shock should be considered in combination with geopolitical concerns.
From the standpoint of interpreting the macroeconomic implications of this compound shock, the increase in food prices will not be associated with climate shocks only. In this respect, it will be because food prices will be determined by a combination of adverse climate conditions, geopolitical factors, energy market developments, and fertilizer shocks.
The main implication of this finding is that one needs to decompose macroeconomic shocks into several components and then evaluate the impacts separately.
Such an approach can be justified considering another message of my research and EconMacro contributions regarding today’s shocks being increasingly complex and interconnected. More specifically, such shocks are becoming non-linear, time-varying, and heterogeneous in nature.
Conclusion: It is necessary to pay attention to some subtleties regarding the current concern about El Niño and its impacts on commodity shocks and inflation. For example, El Niño may harm crops and thus cause an increase in food prices as stated by Reuters. However, our results suggest that El Niño will probably reduce oil prices. Additionally, some effects on fertilizer shocks and geopolitics should also be considered.
To sum up, a correct interpretation of the phenomenon under consideration lies in determining what climatic shock, what commodity, what country/region, and what forecast horizon.
References
Gallegati, M., Ginn, W., Saadaoui, J., Solomou, S., & Tian, K. (2025). Not All Climate Shocks Are Alike: How ENSO Impacts Oil Prices. SSRN Working Paper.
Reuters. (2026). Forecast for strong El Niño fans worries about global crops as Iran war bites. By Naveen Thukral and Peter Hobson, April 24, 2026, updated April 25, 2026.
Mignon, V., & Saadaoui, J. (2024). How do political tensions and geopolitical risks impact oil prices? Energy Economics, 129, 107219.