Abstract
Global oil market disruptions stemming from tensions in the Middle East pose risks to fuel-importing economies such as Malawi. This brief presents early findings on how the Middle
East conflict affects Malawi via global petroleum price shocks. It uses a standard CGE
framework adapted from the IFPRI Social Accounting Matrix. Key findings: (1) Global fuel
price increases pass through strongly into domestic prices, especially in energy-intensive
sectors. (2) Cost-push inflation is the main channel, reducing real incomes and
purchasing power. (3) Macroeconomic conditions worsen, with declines in absorption,
consumption, GDP, and indirect tax revenues. This occurs despite export growth and
fewer imports. (4) External adjustment results in a welfare-reducing rebalancing. Gains
from trade do not offset domestic contraction. (5) Broad-based inflation hits industrial
sectors like chemicals, construction, and transportation. Food prices, especially maize,
also rise, impacting welfare. (6) The agricultural sector diverges. Food crops shrink, while
export-oriented crops such as oilseeds, tobacco, and pulses expand due to improved
competitiveness. (7) Household income and consumption drop across all groups. Urban
and higher-income households lose more proportionally, but poorer households are more
vulnerable. (8) Poverty and hunger increase, especially in rural areas, showing regressive
distributional effects. In summary, petroleum price shocks are contractionary and reduce
welfare. This highlights Malawi’s vulnerability to external energy shocks and the urgent
need for coordinated policy, such as short-term stabilization and long-term investment in
energy diversification and resilience...