Shockwaves from the Gulf: The Ripple Effects on Palm Oil

Shockwaves from the Gulf: The Ripple Effects on Palm Oil

When crude oil prices rise, vegetable oil prices including palm oil tend to move upward as well. 

Figure 1: Historic relationship between oil and commodity prices (Source: Indexmundi and World Bank)

This is driven by substitution effects and growing interest in biofuels as an alternative energy source. To put it simply, when fossil fuel prices rise, biofuels become more attractive, which increases demand for vegetable oils. In the short term, major producing countries such as Indonesia and Malaysia may benefit from higher prices and stronger demand. However, price spikes also create uncertainty. Buyers and sellers may hesitate to commit to contracts. Trade routes can shift. Shipping delays become more likely. In other words, volatility brings risk.

On the social side, surging global energy prices often fuel domestic inflation, increasing living costs for workers and communities around plantations. At the same time, high commodity prices can encourage rapid land expansion as companies chase short-term profits. Without strong oversight, this can increase the risk of deforestation, land conflicts, and labour-rights issues — especially in supply chains involving smallholders.

From a sustainability perspective, the situation is complicated. On one hand, high prices can tempt companies to prioritise production over environmental commitments.. On the other hand, global regulatory pressure continues and is becoming stricter. The European Union, for instance, has introduced the European Union Deforestation Regulation (EUDR), requiring products to be deforestation-free and supported by geolocation evidence. In addition, the Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to conduct due diligence on environmental and human-rights risks across their supply chains. NDPE commitments (No Deforestation, No Peat, No Exploitation) also remain a key benchmark for many multinational buyers.

This situation could create a “two-speed” market. Jurisdictions with stricter regulations will continue to demand transparency, traceability, and data-based verification. Meanwhile, more pragmatic markets may prioritize price and supply availability. This fragmentation increases the risk of “leakage,” where higher-risk products are diverted to markets with weaker oversight.

All of this highlights one key lesson: sustainability and supply-chain resilience now go hand in hand. 

Deforestation monitoring cannot stand alone, it must be linked to logistics risk analysis, supplier stability, and cross-country regulatory compliance. Supplier transformation and strengthening smallholders are critical to maintaining long-term market access. Digital traceability systems and geospatial monitoring are no longer just reporting tools. They help companies see where their products come from, identify disruptions quickly, and respond faster. 

Accurate data is the cornerstone of a sustainable supply chain which has been proven time and again to be more resilient to disruptions. Sustainable chains often require better mapping of suppliers, allowing for faster identification of, and response to, bottlenecks or disruptions. The focus on sustainability often overlaps with strategies that increase agility and the ability to adapt quickly to changes, making them more capable of handling unexpected shocks. In practice, sustainable supply chains often turn out to be more resilient because they are better mapped, better monitored, and more transparent.

Geopolitical tensions may eventually ease. But the global push for stronger sustainability standards is likely to continue. In an uncertain world, palm oil producers and traders that build transparent, responsible, and adaptable supply chains will be better positioned to withstand shocks — and stay competitive in the long run.

Source: 

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