El Niño 2026-2027: A Domino Effect on the global economy

The next El Niño episode could rank among the most intense on record since modern measurements began. Forecasts point to an exceptional event during the Autumn and winter of 2026–2027, with potential repercussions for water availability, energy production, crop yields, and international transportation.

Although its most visible effects will be meteorological, its consequences will not be limited to regions experiencing droughts, floods, or wildfires. They may also affect companies whose production facilities are located thousands of kilometres from the affected areas, through suppliers, raw materials, trade routes, or energy markets.

This is one of the key characteristics of climate risk for the business sector: an organization can suffer the consequences of a phenomenon without being directly exposed to it. To understand the scope of El Niño, therefore, one must look beyond the location of the initial impact and observe how it spreads to the rest of the economy.
 

One of the main mechanisms through which El Niño spreads its effects is changes in precipitation. In some regions, reduced rainfall can limit the availability of water for consumption, agriculture, and hydroelectric power generation. When hydroelectric generation declines, energy systems are forced to rely more heavily on thermal sources, which are generally more expensive, putting pressure on electricity prices and availability.

The impact can extend to activities that depend on a stable energy supply: industrial facilities, data centers, cooling systems, critical infrastructure, and transportation networks. In markets where reduced hydroelectric generation coincides with difficulties in obtaining fuels, the risk of disruptions also increases.

Southeast Asia, the Andes, and Southern Africa are among the regions to monitor due to their exposure to these dynamics. In these regions, drought conditions can simultaneously affect energy production and other economic activities that depend on water.

For a company, the problem doesn’t necessarily begin with a supply disruption. It first manifests as rising costs, reduced availability of resources, or a decrease in a supplier’s production capacity. If these conditions persist, the impact can gradually spread throughout the entire supply chain. 

Water also plays an essential role in logistics. The Panama Canal is one of the clearest examples of how climate change can impact international trade.

The canal’s operation depends on the water stored in the reservoirs that supply its locks. When drought reduces water levels, restrictions are imposed on ship draft or the number of transits. These restrictions reduce available capacity and may force shipping companies to reorganize their operations.

For companies that use these routes, the consequences include higher transportation costs, delays, and changes in delivery schedules. A company that imports components or raw materials from Asia or the Americas does not need to operate directly in Panama to be affected—it is enough that its goods depend on a route subject to restrictions.

A similar dynamic is observed in river transport. Low water levels in rivers can limit the movement of goods in certain South American river basins, such as the Río de la Plata, making it difficult to transport agricultural products and other raw materials by barge.

The impact is particularly significant for organizations that operate with tight inventories or rely on a small number of suppliers. If a route loses capacity when time and storage margins are already limited, a localized disruption can ultimately affect production, distribution, and commercial commitments.

Agriculture is another sector highly exposed to the variations associated with El Niño. Changes in precipitation and temperatures can reduce harvests in some regions and boost them in others. The outcome will depend on the crop, the location, and the specific conditions of each season.

Forecasts point to significant impacts in Southeast Asia, South Asia, and Southern Africa, where water shortages may harm agricultural production. In parts of South America, such as the coast of Peru and the southeastern part of the continent, however, the problem is linked to heavy rains, flooding, and damage to crop-growing areas or to the infrastructure needed to bring crops to market.

These disruptions affect the prices of food, vegetable oils, grains, and other raw materials. They can also affect their availability on international markets. Faced with a decline in domestic production, some countries decide to prioritize domestic supply or impose export restrictions, putting additional pressure on foreign buyers.

For a food company, the impact is direct. For a company in another sector, it may manifest as higher procurement costs, rising prices for certain inputs, or delivery delays. Exposure depends, to a large extent, on the origin of the products and the alternatives available if a supplier ceases to deliver as usual.

That is why knowing the origin of raw materials and critical components is just as important as identifying the company’s own facilities located in vulnerable areas. A supplier’s location may reveal a dependency that does not appear on the company’s asset map but that affects its ability to continue operating.
 

El Niño can also alter the likelihood of wildfires, heat waves, floods, and landslides. The outlook for Southeast Asia, Central America, and Australia points to increased concerns about drought and wildfires, while parts of Southeast America and the Horn of Africa face risks associated with heavy rainfall and flooding.

These events often cause direct damage to facilities, warehouses, power grids, or transportation infrastructure. However, business continuity can also be compromised, even if facilities remain intact.

A blocked highway makes it difficult for workers to reach a plant. An airport affected by smoke disrupts travel and the transport of goods. A supplier disruption leaves a production line without components. And a flood in a logistics hub delays deliveries to customers in other markets.

The difference between suffering localized damage and facing a business disruption depends, in part, on the available alternatives. When a company has a plan and the capacity to reorganize its operations, it can better absorb the disruption.

El Niño does not affect all regions in the same way. Its influence on precipitation and temperatures varies by area and can be modulated by other atmospheric and oceanic patterns. Therefore, the intensity of the event alone does not allow us to predict what will happen in each region.

For globalized companies, this uneven distribution means that climate monitoring must be tailored to their actual dependencies. It is not enough to simply observe where the most intense weather impacts are expected; it is also necessary to identify which regions supply the organization, which routes it uses, and which markets might experience pressures on prices or resource availability.

El Niño thus serves as a reminder that geographic distance does not eliminate exposure. The climate phenomenon is global. The business impact, however, always ends up being specific.