A Historic El Niño Is Coming That Could Cost the World…

PodcastOdd LotsJohn?Aug 14

Forecasting models are converging on an unusually strong El Niño, potentially the strongest since at least 1950, with effects that could extend from weather patterns to interest rates, inflation, currencies, and agricultural markets. The event’s global teleconnections can disrupt interconnected supply chains, while research suggests economic damage may persist beyond an initial price shock; the 1997–98 episode produced an estimated $36 billion immediate loss and roughly $5.7 trillion in global losses over five years. Forecast lead time, early-warning systems, insurance, and infrastructure can improve resilience, but limited evidence of widespread adaptation leaves historical experience an uncertain guide.

Energy Transition Inflation Currencies Supply Chains Commodities Risk Management

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Key Takeaways

El Niño is being incorporated into sell-side macro forecasts because its effects can reach interest rates, inflation, emerging-market currencies, and agricultural markets. Its recurring teleconnections provide some regional predictability, including for Peru, Australia, the Indian monsoon, and the southwestern United States.

Forecasting models are converging on an unusually strong El Niño, potentially the most powerful since at least 1950 and warmer than the 2016 event, although its precise severity remains uncertain. Different warming patterns across the tropical Pacific can produce distinct “flavors,” changing risks to the United States and the behavior of Atlantic hurricanes.

El Niño results from weakened Pacific trade winds that allow warm water to shift eastward, exposing more of the atmosphere to tropical ocean heat and potentially amplifying the event through the Bjerknes feedback loop. Its intensity is assessed using tropical Pacific sea-surface-temperature anomalies, with the Relative Niño Index adjusting for the warming baseline.

El Niño’s agricultural effects depend heavily on timing because planting and harvest schedules are calendar-dependent. Forecasts and observed signals can help farmers adjust sowing dates, while a delayed South Asian monsoon could increase diesel-generator use for irrigation and potentially drive diesel-price spikes and political pressure around subsidies.

The current El Niño could amplify the long-term warming trend into unusually hot years: the event is expected to wind down around February or March 2027, while 2026 has a nontrivial chance of being the warmest year on record and 2027 is described as virtually guaranteed to set a temperature record. At the same time, it remains difficult to determine how El Niño’s characteristics will change under different levels of warming later this century.

ECONOMY

Macro Forecasts — El Niño is appearing in sell-side research because analysts expect it to affect interest rates, inflation, and emerging-market currencies. The event is therefore entering macroeconomic and investment-market outlooks.

“But just in the past, you know, few days, I've had a Thailand economics note from Citi talking about interest rates and quoting the potential impact of El Nino Okay…”—

Historic Potential — Forecasting models are converging on an unusually strong El Niño, potentially the strongest since at least 1950 and warmer than the powerful 2016 event. Its precise severity remains probabilistic.

“Right?…”—

Climate Reconfiguration — El Niño begins when Pacific trade winds weaken, allowing warm water from the western tropical Pacific to move eastward. Measured through sea-surface-temperature anomalies, this exposes more of the atmosphere to tropical ocean heat and reorganizes global weather; the Bjerknes positive-feedback loop can amplify the process.

“And then every once in a while, those trade winds weaken and break down…”—

MARKETS

Monsoon Diesel Shock — A delayed South Asian monsoon can force farmers to irrigate unexpectedly, increasing demand for diesel-powered generators and potentially causing diesel-price spikes. The transcript also links these price movements to political fortunes around diesel subsidies.

“We've been in an El Nino advisory since June…”—

El Niño Enters Markets

The hosts introduce a potentially record-breaking El Niño and explain why economists, central banks, and currency analysts are treating it as an investment and macroeconomic risk.

How El Niño Works

Justin Mankin explains the ocean-atmosphere system, trade winds, warm pools, and eastward-moving Pacific heat that define El Niño and reshape global weather.

Record El Niño Forecast

Forecasting models are converging on an El Niño potentially stronger than any since at least 1950, with comparisons to major historical events and current NOAA warnings.

Ancient El Niño Forecasts

Mankin describes Peruvian farmers’ historical use of Pleiades visibility to anticipate El Niño and discusses how regional temperature anomalies define different event types.

Monsoon And Crop Timing

El Niño’s seasonal peak affects agriculture, South Asian monsoon timing, diesel demand, farmer welfare, political fortunes, and global temperature records.

El Niño’s Economic Toll

Mankin’s research finds that El Niño can depress economic growth rather than merely create temporary price shocks, with simultaneous hazards disrupting markets and supply chains.

Trillion-Dollar Aftereffects

The 1997–98 event’s immediate loss estimate of $36 billion contrasts with roughly $5.7 trillion in global losses over five years, while permanent effects cannot be ruled out.

Adaptation And Resilience

Forecast lead time, early-warning systems, emergency response, insurance, reservoirs, and diversified markets could improve resilience, but evidence of widespread adaptation remains limited.

El Niño As Natural Experiment

Mankin defends treating irregular El Niño episodes as a natural experiment, using non-El Niño years as a control while emphasizing the unprecedented backdrop of global warming.

Weather Risk Takeaways

The hosts conclude that El Niño’s global simultaneity may create lasting economic effects, especially alongside climate change, fertilizer constraints, and vulnerable supply chains.