Oil Crisis Gone, 'El Niño' Shock?...Citigroup "Global Economy Could Face $700 Million Impact"

▲ El Niño, Global Warming, International Oil Prices, Food/AI Generated Image

Just as the international oil price shock seemed to ease, Citigroup warned that El Niño could bring a new shock of up to $7 trillion to the global economy.

According to financial media MarketWatch on June 26 (local time), Citigroup economists stated in a Thursday report that another supply shock could be on the horizon, as signs of easing energy supply shocks from the Middle East emerge. The analysis team led by New York-based Citigroup economist Nathan Sheets stated, “While one supply shock is subsiding, 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 raise the level of warning. Citigroup pointed out that past El Niño cycles have left significant economic losses, stating that academic estimates suggest the El Niño from 1997 to 1998 caused losses of approximately $5.7 trillion. Citigroup assessed that El Niño as the most economically destructive El Niño on record.

The U.S. National Oceanic and Atmospheric Administration (NOAA) sees a more than 95% chance of El Niño beginning in the second quarter and continuing until March of next year. Furthermore, the probability of a very strong El Niño occurring by the end of 2026 was 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 Gross Domestic Product (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, aging populations, slowing productivity, and the closure of the Strait of Hormuz and energy shocks due to the Middle East conflict. However, Citigroup assessed that the Middle East conflict is showing 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 projected that Brent crude prices would average around $75 per barrel in the second half of the year. This is $15 higher than pre-war expectations, but they added that the current system could allow for an expansion of Iranian oil exports.

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