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Global Interpretation of Pharaoh’s Dream | Long Read

// The causes behind imminent global crisis are deeper than they seem, and the consequences may be more intricate than anticipated


very few haven’t heard about the following verse from Genesis: The Pharaoh dreamed that seven cows were eating grass beside the river, but seven more lean cows came out of the river and started eating the healthy ones. The next day he dreamed another version of the same dream: seven thin heads of grain ate the seven healthy ones. Joseph, who interpreted the Pharaoh’s dream told him that seven years of famine would follow seven years of great abundance, simply put food crisis. This makes us wonder what those, who make economic decisions, dream at night.

The most worrisome two issues for the world today are global inflation and the food crisis. The UN estimates that the consequences of the war in Ukraine could impoverish up to 1.7 billion people, or more than a fifth of humanity. UN Secretary General Antonio Guterres believes the jump in wheat prices is nothing but a ‘silent attack on developing countries.’ Rich countries, on the other hand, do not hide their intentions of increasing their reserves. This will certainly both deepen the imbalance in the market and cause even bigger price hikes. So, what can be done in such a situation?

UN Secretary General considers the wheat price hikes ‘silent war against poor countries’

The answer to this question first requires truly understanding the nature of the problem. The thing is that at the moment the approach toward the issue is somewhat inaccurate. The smoke of the fire caused by the war in Ukraine, which has engulfed the economy as well, prevents us from seeing the true essence of the problem at hand. And the essence is that what is happening in the global market today is not only rooted in the war in Ukraine and sanctions against Russia. These factors, no doubt, played a great catalytic role in the final stage. But the trends had started long before that and gone through at least three stages before the war even started in Ukraine.

Stage One: Complications of the Crisis

When did the banking crisis that started with the bankruptcy of Lehman Brothers in 2008 in the USA and then rapidly swamped the entire world finish? Answering this question is no easy feat. The World Economic Outlook, published by International Monetary Fund in October 2018, reads that among the banking crisis group about 85 percent still showed negative deviations a decade after the 2008 meltdown. In the group without a banking crisis, output remained below precrisis trends in about 60 percent of economies.

Turkish economist Nesat Gundogdu said in his interview to Az. Vision. az that the crisis that started in the USA in 2008 paved the ground for global inflation. Countries increased their borrowing drastically post crisis.
Within a decade the overall debt of world countries grew from 36 percent of their total GDP to 52.
Investing into economies was recovering too slowly. In 2017, the total amount of investments in the world was only 25 percent of what it would be if not the 2008 meltdown.

Economic scientist Elshad Mammadov said in his videocast to that the global economy has been suffering from a distortion of logistics chains and diminution of production ties for a long time. An acute structural crisis led to the development of large financial ‘bubbles’ in the world economy in 2008-2009. As the ‘bubbles’ burst, crisis set in. Although the central banks somewhat covered the problem through increased emissions at a later stage, the problem was not resolved, but even deepened.

Elshad Mammadov: ‘Since about 80 percent of the growing money supply in Western countries is directed at the financial sector instead of the real sector, the inflation has deepened, disturbing the balance’

The aftermath of the 2008 crisis in all aspects of the global economy was much longer than anticipated. The outlook by IMF proves that it was too early to even mention eliminating the consequences of the meltdown in late 2018. Exactly a year later, the world economy would receive another hard blow, bursting open the old wounds of the crisis.

Stage Two: The Pandemic

What do you need to do to pay money to people, who sit at home and don’t work? You need to print that money! And what happens when you print money?! Inflation!

The $12 trillion-financial measures during the pandemic cause an ‘inflation explosion’

On 21 December 2020, the US Congress approved yet another $900 billion relief package, thus increasing the capital injection into the economy in a year to $3 trillion. A $2 trillion deal had been achieved previously in 2019. At the same time, the Fed had been keeping the interest rates almost close to zero since March 2020. In response to the coronacrisis, the world’s central banks have taken fiscal measures totalling $12 trillion. The US alone accounts for $5 trillion.

In such a situation what Princeton professor Markus Brunnermeier had already predicted and gently named the ‘inflation saw’ seemed inevitable: Stimulus programs weaken the impact of deflationary forces resulting in an inflation ‘explosion’.

Overall, the study published by the National Bureau of Economic Research shows that each epidemic and war has always brought about a recession or inflation. Both the Spanish Flu and the First and Second World Wars had caused major food price hikes.

Historically, wars and epidemics have been followed by drastic price hikes

That is, even if everything had gone well, inflation would still have been inevitable after the pandemic. Unfortunately, not everything went well. As of mid-2021, humanity started hearing a certain phrase more and more often: ‘Supply chain disruptions.’

The disruption of global supply chains has further boosted inflation by deepening the supply/demand imbalance at the exit of the pandemic

Stage Three: Wrong Exit

It was not only the global supply chain that was disrupted upon the exit of the pandemic, the supply and demand balance was also greatly disturbed. Lockdown had jobs closed, demand narrowed, and supply accordingly reduced. As the restrictions were lifted, demand soared, leaving insufficient supply that failed to meet it. As a result, a third factor joined the reasons behind the ever-growing inflation. In 2021 world food prices increased by about 30 percent.

The Global Food Index began to rise sharply on the very eve of 2021 (Source: FAO)

As the ‘pandemic exit disbalance’ pushed the fuel prices up, the cost of container shipments has also tripled since. The rapidly growing gas prices also upped the price for fertilizers. Director at the Center for Agrarian Research at the Ministry of Agriculture Firdovsi Fikretzadeh believes one more factor should be taken into account: The crops in major grain producing countries have fallen due to climate. As a result, the global grain market has been in quakes since 2021.

Firdovsi Fikretzadeh: ‘The consequences of the pandemic, global climate change and the Ukraine-Russia conflict have all gotten tangled up’

The chart clearly shows that the hike in food prices has gained a new impetus since then. This stage, called the ‘Covid Inflation’, was mainly characterized by climbing food prices. The situation remains unchanged: Turkish expert Turgay Turker insists that food inflation plays a key role in the structure of the current global inflation.

Thus, as 2022 started, the inflation train pulled by three powerful locomotives was moving rapidly towards the crisis station. As if that were not enough, the strongest of factors joined the process and mixed the already shuffled cards some more.

Stage Four: War

Both Ukraine and Russia were major players in the global $120 billion-grain market. Both are among the world’s top 10 wheat producers and exporters.

Russia and Ukraine score among the top ten grain exporters in the world

According to the Ukrainian Ministry of Agriculture, since the war the grain exports in Ukraine have dropped 10-fold, leaving mere 500,000 tons, where whopping 5 million tons could be. Ukraine also plays a major role in the corn market. The crop is not only the raw material for vegetable oil but also for cattle and poultry feed. The escalation of corn prices automatically leads to inflation of meat and dairy products as well.

Price dynamics of corn in different markets

Expert at the Institute of Kazakhstan World Economics and Politics, doctor of economic sciences, professor Magbat Spanov believes that different sources show various ratios, however, Russia and Ukraine accounted for about 30 percent of the grain supply in the global market. There are no other countries able to replace them at the moment. In other words, the vacuum remains unabhorred.

Magbat Spanov: ‘The Ukrainian link has virtually left the world’s food supply chain’

It isn’t just about grain. Both countries have a significant place in the export of vegetable oils. Overall, the Black Sea region, boasting an elaborate transport logistics, used to play a crucial role in supplying the entire world with vegetable oils. Now it is home for mines, while ships are taking refuge in ports, leaving all logistics schemes disrupted. Therefore, the market for vegetable oils has been particularly shaken.

There is a real ‘earthquake’ in the vegetable oil market

At the moment the global food price index is breaking all time highs. The wheat prices have increased 1.5-fold in the first quarter of 2022 and the process is expected to continue. This situation certainly raises both serious concerns and questions.

Question One: Where are We Headed?

David Malpass, President of the World Bank, predicts that the food crisis is not expected to finish by the end of the year. Therefore, countries must list their reserves for sale. He showed India as an example to developed countries.

However, Stanislav Tkachenko, Professor at Saint Petersburg State University, Doctor of Economic Sciences, reminded in his videocast to that although last year China produced 134 million wheat, India 107 million and Russia 83 million, India has a 10-times bigger population than Russia and has an acute need for grain to provide for both its population and cattle. This is why a number of experts do not consider India a serious exporter. Taking the impact of all these factors into account, we may expect the current period of expensive food to last another 3 to 5 years.

Stanislav Tkachenko: ‘We are entering a period of high food prices. If we are to look at the previous 50 years, these periods usually tend to last 3 to 5 years’

The word ‘stagflation’ has entered our vocabulary quite recently. The term derives from two different words: stagnation and inflation. Stagflation is one of the worst things that might happen in the economy. President Nixon’s harsh economic reforms of 1971-1973 ( abandonment of the ‘gold standard’, etc. ) had created a similar situation in the USA. When complemented with the ‘meat and fish crisis’ in Peru and the ’73 oil crisis, the powerful stagnation that appeared, as a result, had shook the entire world economy. The downside of stagflation is that it is impossible to reduce both inflation and unemployment at the same time: Cutting down on inflation produces more joblessness; reducing employment boosts inflation. The results bring about a period of social problems that last several years. Unfortunately, the entire world is about to enter such a period.

Stagflation expectation index in the US has reached a pre-2008 meltdown level (Source: Bloomberg)

If urgent measures are not taken immediately, the pessimistic predictions by the IMF Managing Director, Kristalina Georgieva, will become inevitable: a famine wave will start in poor countries. Around 20 African countries are in the biggest risk group. Experts say the situation will worsen in countries such as Egypt, Yemen, Lebanon and Libya in the following stage. Of course, the situation in the developed countries is also not to be envied. Although there is no risk of direct famine, the constant price hikes exacerbate social problems. We have reached our second question in this case.

Question Two: What Can We Do?

American Political Analyst Andrew Korybko said in his interview to that there is not much that can be done to prevent global inflation, since there isn’t a central global authority responsible for agriculture, logistics and price controls. Even if there were one, it is highly unlikely that it could do anything against the strong wave of inflation, caused by the coincidence of four reasons at once.

Let’s say The US Federal Reserve raises interest rates to curb inflation. JPMorgan Chase and Deutsche Bank experts believe it is exactly what they will do. The US economy will enter 2023 with high-interest rates and the same policy will continue at least until 2024. The interest rates that range between 0.25 and 0.5 percent at the moment will exceed 3.5% in two years. This is a grave indicator that can slow economic development by causing high volatility in financial markets and increasing risks.

After all, high-interest rates mean expensive loans, which in turn, lead to a decline in business activity 

The end of globalization has been the topic of discussion in the Western media for some time

In this situation, the only reasonable option is for countries to reduce the global scale and coordinate their own activities at a regional level. Most experts we spoke to share the same view that one of the main reasons why the structural crisis in the world economy has reached this point is the significant toxicity of the global dollar-based system. In this case, overcoming the crisis might require dismantling the global economic system that is based on a single currency.

It is also possible that as the crisis deepens, deglobalization will become the main trend. Regional economic hubs will try to turn to alternative mechanisms to replace the dollar. This process of deglobalization might take quite a long.

Economic Scientist Emin Garibli believes that the Caspian and South Caucasus countries should establish a cooperative alliance. ‘We have wanted this, but were waiting for the ‘invisible hand’ of the market economy to regulate the process itselfWe now need to accelerate the process without solely relying on the market mechanisms, because we will not be able to come face-to-face with the global crisis without merging efforts.’

Emin Garibli: ‘Regional integration can at least lead to sharing of resources to solve the problem’

The regional countries have traditionally been our main partners in the agricultural market. It stands on both the logistical factor and historical traditions. Some countries in the region have a clear specialization in certain products, while others should either create one or explore new areas. Only then should they build new contacts based on traditional and new specializations. For instance, pomegranate, hazelnut and date production could become a new direction for Azerbaijan.


Thus, a more in-depth analysis of the crisis anatomy shows that although it may seem to be the byproduct of war at first glance, it is in fact based on the global systemIt would start even if there was no war and even if the war ends today, the crisis will not end. It is impossible to predict how long it will last and what aftermath it is going to bring about. Countries must take their steps carefully considering the fact that we will have to live with this disease for some time to come. And those steps must primarily target strengthening regional cooperation and insuring national economies against risks. 

  03 June 2022    Read: 2260    Can be read: 17 min.

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