At a time when the global economic growth appears to have gained momentum after the tepid performance of 2015 and 2016, the world has started to face a series of political and event risks that can potentially exert severe economic impact. The risk of economic growth deceleration is real.

A sharp increase in the price of crude oil in the wake of geopolitical tensions is one significant factor that can hurt economies and thereby growth prospects. Another is the worsening trade friction triggered primarily by the US action. If the friction spirals out of control – for whatever reason – a full-blown trade war into which many countries may be willy-nilly sucked in would be disastrous.

Currently, the world is characterised by several looming uncertainties which are likely to have far-reaching implications for the commodities market in the months ahead. Some of the significant events on the horizon include:

• OPEC + meeting to review oil production policy (scheduled for June 22)

• Venezuela crisis

• Iran policy of the US

• US Protectionist policies on national security grounds

• US Federal Reserve rate hike in second-half 2018

• China slowdown

• Elections in Mexico and Brazil as also US Congressional elections

• Looming Brexit deadline

While these are expected to pan out over the coming months and quarters, the risks associated with these events are sure to affect commodity prices which in turn can disturb corporate financial performance and projections. Equity markets will not be spared either.

Protectionism has come to the fore, initiated primarily by the US with the imposition of tariffs on imported steel and aluminium. It is sure to trigger retaliatory measures by affected countries and the process has already started.

Trade disputes triggered by the US but changing stand from time to time has the potential to impact political relations and in turn economic activity in different ways.

In a trade war, economic growth will be the casualty. Jobs will be lost, capacities will remain under-utilised, funds may idle unproductively and countries could start exploring political solutions to economic woes. In the event, protectionism may be followed by ‘more protectionism’, something that is best avoided.

The impact of the ongoing uncertainties is abnormal. Take the peculiar case of gold for instance. During times of economic and political uncertainty, the yellow metals usually gains given its well recognised safe haven status. But the precious metal has actually lost value in the last few days and is trading well below the psychological $1,300 an ounce. On June 19, the metal traded at $1274.

One reason could of course be the recent US Fed rate hike and the consequent strengthening of the dollar. However, if trade friction were to escalate into a trade war, gold is sure to gain because equities will suffer. So, it may be naïve to believe that gold has lost its appeal. The Friday (June 22) meeting of OPEC plus Russia is likely to be a stormy one as serious differences of opinion over increase in production have emerged. Both Russia and Saudi Arabia are in favour of raising crude oil production while others are not. There is risk the production cut agreement may even come to a premature end. That can immediately send the crude oil prices spiraling down.

The escalating trade tensions between the US and China is already seen impacting base metal prices. LME prices are under pressure. Copper has dipped below $6,900 a tonne and nickel below $15,000 a tonne. Agricultural commodity markets – grains and oilseeds – too are under downward pressure. It is scary to imagine the market conditions if a full fledged trade war involving several countries were to break out.

The writer is a policy commentator and commodity markets specialist. Views are personal

comment COMMENT NOW