The expected return of the El Nino weather pattern, intensified by climate change, is emerging as a new threat to a global economy already strained by the fallout from the Iran war, the Wall Street Journal reported on Thursday.
El Nino occurs every few years when tropical Pacific trade winds weaken and ocean temperatures rise. The phenomenon, which often peaks around year-end, typically brings hotter and drier conditions to much of Asia while increasing rainfall in other regions.
The last El Nino cycle, from 2022 to 2023, triggered disruptions ranging from India's rice export ban and a dengue epidemic to low water levels in the Panama Canal, severe flooding in Brazil and soaring chocolate prices.
Forecasters in the US and elsewhere say El Nino is highly likely to form this year. Exceptionally warm ocean temperatures have raised concerns that it could become a severe event, though scientists say it is too early to know its full strength.
Farmers across Asia are closely monitoring forecasts as they contend with high diesel and fertilizer costs.
In energy markets, the uncertainty is adding to concerns over when the Strait of Hormuz will fully reopen.
BNP Paribas commodities strategist Jason Ying said stronger demand for LNG in Asia to power air conditioners during heat waves could tighten European supplies ahead of winter.
"LNG cargoes might get diverted over to Asia instead of European gas storage, and that means we start at a lower base for winter," Ying reportedly told WSJ.
India is already enduring an intense heat wave, while forecasts point to below-average monsoon rainfall. El Nino years typically increase electricity demand as air-conditioner use rises, while drought reduces hydropower generation and boosts fossil fuel consumption.
The previous El Nino also sent cocoa prices surging after dry weather damaged crops in Ghana and the Ivory Coast. Analysts warn that other commodities, including sugar and natural rubber, could also become more expensive.
Andrew Watkins, a climate scientist at Monash University in Australia, reportedly said El Nino acts as "a risk multiplier" for extreme weather driven by fossil fuel emissions on an increasingly warmer planet.
(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)