World Bank Warns of a New Surge in Global Energy Prices: Domestic Market Faces Another Crisis

Rising energy prices on the global market could place an additional burden on citizens and businesses in the Republic of Srpska, leading to higher fuel, transport and food costs. Economists warn of declining purchasing power, increased production costs and the risk of a slowdown in economic activity.

In its latest report, the World Bank forecasts that global energy prices could rise by 32% this year, compared with its previous estimate of 24%. The main reasons cited are conflicts in the Middle East and disruptions to supply chains, with the average price of Brent crude oil expected to reach USD 92 per barrel and European gas prices projected to increase by almost 60%.

A particular cause for concern is the possibility of further increases in the prices of mineral fertilisers and food, as high production costs have already placed a significant burden on farmers and consumers. A further rise in energy prices could exacerbate the existing situation, increase agricultural production costs and put additional upward pressure on the prices of domestically produced food.

Economist Igor Gavran told Glas that the forecasts are based on current global circumstances, but that a de-escalation of conflicts in the Middle East and Ukraine could lead to relatively rapid market stabilisation and falling prices.

“This forecast is based on the assumption that the current situation will remain unchanged. If a ceasefire is reached and supply chains return to normal, the market could ease and global prices could fall,” Gavran said.

More Expensive Fertilisers Threaten Agriculture and Food Prices

He noted that the consequences for the Republic of Srpska could be less severe in terms of fertilisers, given its gas supplies from Russia, but that the fuel market is heavily dependent on imports.

“When it comes to fuel, we depend on imports, and global developments have a direct impact on domestic prices. Nevertheless, prices are already very high, so a significant deterioration is difficult to expect without further major disruptions,” Gavran stressed.

According to him, the biggest long-term problem lies in food production, as domestic farmers are facing not only more expensive fertilisers and other production inputs, but also unequal competition from imported products.

Higher Production and Transport Costs Reduce Business Profit Margins

Economist Miloš Grujić assessed that rising oil and petroleum product prices could be reflected at domestic petrol stations as early as in the coming weeks, while more expensive energy would gradually increase production and transport costs.

“On the fuel market, fluctuations in international commodity prices will be passed on directly to consumers. At the same time, the electricity market in the Republic of Srpska is protected until the end of the year thanks to domestic production. However, pressure on electricity generation costs remains, meaning that the issue of price increases could become relevant at the beginning of the next regulatory year,” Grujić said.

He emphasised that higher transport and raw material costs would reduce companies’ profit margins, while rising prices of food and basic necessities would further erode household purchasing power.

Agriculture is particularly vulnerable, as high mineral fertiliser prices increase production costs and may affect both crop yields and the prices of domestically produced food.

“The combination of more expensive inputs, transport costs and weaker consumer demand creates stagflationary pressures. Businesses, particularly small and medium-sized enterprises, could face liquidity problems, reduced competitiveness and postponed investments, while more expensive capital would make it even harder to meet financial obligations,” Grujić pointed out.

Falling Global Prices Do Not Guarantee Cheaper Fuel and Food

Igor Gavran also warned that a potential decline in global prices does not necessarily mean that prices on the domestic market will fall as well.

“That is why it is important for the competent institutions to monitor traders’ pricing practices and intervene when reductions in costs are not passed on to consumers,” Gavran said.