WESTERN PRODUCER — There’s a good rule to follow with wars: don’t start one.
Once a war is launched, nobody can tell where things will end up.
Canada isn’t likely to start any war anywhere any time soon, but that doesn’t mean this country, and its farmers, won’t be significantly affected by the war that erupted when Hamas launched a vicious slaughter of Israeli civilians two weeks ago. As Israel moves to eliminate the Hamas government’s ability to commit future acts of mass slaughter from the Gaza Strip, the entire Middle East is one mistake, one miscalculation away from tumbling into a regional war.
Sometimes Middle East wars have massive impacts on commodity prices.
The 1973 Yom Kippur war led to the Arab oil embargo, which spurred a surge in oil prices and years of woe for the United States and other oil-importing nations. The U.S. and Europe were already suffering from inflation, and the oil embargo came along at the worst time.
Simultaneously, crop prices soared following failed Soviet Union harvests, creating further woe in the industrialized West, and the term “stagflation” entered our vocabulary.
For about a decade most western nations struggled with persistently high inflation and rising unemployment. It was a bad time.
It was a different matter in Western Canada. Soaring oil prices brought a wealth windfall for Alberta and Saskatchewan, while sky-high crop prices transformed farmer fortunes across the country. After many years of hard-scrabble existence, farming finally seemed to have become a lucrative profession.
It’s still up for debate how much of the 1972-82 commodity bull market was due to the oil embargo and how much to existing factors such as U.S. government deficits following the Vietnam War, Soviet crop failures and wrong-headed government responses such as wage-and-price controls and creeping protectionism.
However, there’s no question the oil embargo worsened and exacerbated inflationary problems in mature economies.
Not all Arab-Israeli wars have this impact. In fact, few have.
The 1948 war was over quickly with little impact. So too with the 1967 Six Day War. From the 1980s on the various Arab-Israeli conflicts haven’t spread widely, either militarily or economically.
However, the world right now is sitting in a disturbingly similar situation to 1973. Our inflation problems are already stark. The Russian invasion of Ukraine has strained the world’s grain and energy trade flows, creating higher prices, more hunger and worsening inflation impacts.
Europe is economically stagnant, China is stumbling and U.S. growth isn’t enough to create real worldwide dynamism.
Protectionism is worsening in many places.
Any spread of the Gaza Strip war would come at a dreadful time for the world economy.
The impacts for farmers wouldn’t necessarily echo the 1970s. History doesn’t repeat exactly. Nobody should assume that troubles in the world economy arising from this war will result in good economic times in Western Canada.
Hamas proved once again that it’s easy to start a war. Israel isn’t likely to agree to any ceasefire before Hamas is stripped of its weapons. That will leave everyone in the region, and all of us around the world, watching anxiously, hoping this stays contained and doesn’t become like what we saw in 1973.
That’s a commodity market story nobody needs to hear again.
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