Page 19 - Policy Economic Report- June'26

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

El Niño is typically associated with below-normal rainfall across parts of South and Southeast Asia and
Australia, and above-normal rainfall in parts of the Americas, resulting in disruptions to agricultural output
and water availability. Reduced production of key food commodities such as rice, wheat, maize, sugar,
edible oils, and coffee could contribute to higher global food prices and renewed inflationary pressures,
particularly in emerging and developing economies where food accounts for a significant share of
household expenditure. Climate-related disruptions to agricultural supply chains may also affect global
trade flows and increase volatility in commodity markets.

Beyond agriculture, El Niño is expected to have important implications for global energy systems. Lower
reservoir levels may reduce hydropower generation in several countries, increasing dependence on
thermal power generation and natural gas. Higher temperatures are also likely to raise electricity demand
for cooling, adding pressure on power systems and fuel markets during peak demand periods. These
developments could reinforce existing energy security concerns, increase fossil fuel consumption, and
contribute to higher energy costs for both households and industry.

Figure 9: Potential Economic and Sectoral Impacts of El Niño Across Selected Emerging Market
Economies

Source: S&P Global PMI

Emerging market and developing economies remain particularly vulnerable to these climate-related
shocks due to their greater dependence on agriculture, limited climate-resilient infrastructure, and higher
exposure to food and energy price volatility. Rising food and fuel prices could weaken household
purchasing power, increase fiscal pressures through food and energy support measures, and limit the
scope for monetary policy easing in economies where inflation remains above target. Countries across
South and Southeast Asia, Latin America, and Sub-Saharan Africa are expected to face the greatest
economic risks if adverse weather conditions persist during the remainder of the year.

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