[News in War History] Civil Wars Threatening Cola Prices... The Correlation Between Inflation and War

Supply Shortage of 'Arabiageom' Amid Prolonged Sudan Civil War
Superinflation Born from Alexander's Conquest Wars
Worsening Due to Overlapping Ukraine War and Global Warming

One of the main ingredients in carbonated beverages such as Coca-Cola, 'Gum arabic,' is facing severe supply disruptions due to the prolonged civil war in Sudan, putting beverage companies worldwide on high alert. This raises concerns about potential production setbacks for carbonated drinks during the summer, the peak demand season. Amidst the already widespread inflation causing soaring prices globally, the economic hardship felt by ordinary people is expected to worsen.

The prolonged war in Ukraine has already caused global grain prices to skyrocket, and the ban on Russian crude oil imports has driven fuel prices up sharply, exacerbating hunger in the poorest countries. Particularly, inflation caused by war can only be truly resolved once the conflict ends and logistics routes regain stability, making it difficult to find a quick solution.

The phenomenon of 'hyperinflation,' often discussed in economics, is said to have originated from wars since ancient times. In this article, we will explore the relationship between war and inflation, which has historically been closely linked across time and cultures.

[Image source=Reuters Yonhap News]

◆News: Worsening Supply Shortage of 'Gum arabic,' a Cola Ingredient, Due to Sudan Civil War

Let's start with the news. According to Al Jazeera, a Middle Eastern media outlet, the civil war in Sudan, Africa, which resumed in April and has lasted over three months, has caused significant disruptions in the production and distribution of Gum arabic locally. Gum arabic refers to the sap extracted from acacia trees in the Middle East. It has no distinct smell or taste but acts as an excellent emulsifier when mixed with sugar, making it an essential ingredient in beverages and ice cream manufacturing.

In Sudan's key production areas, Kordofan and Darfur, ongoing battles between government forces and rebels have made harvesting impossible. Additionally, vehicles transporting the gum to ports have been hit by shells or had their cargo looted, severing distribution routes entirely.

The appearance of Arabic gum harvested from acacia trees native to the Middle East and Africa. [Image source= Reuters·Yonhap News]

As a result, Gum arabic trading has virtually disappeared locally, blocking sales channels for stocks held in various villages and causing prices to plummet. According to AFP, the price per ton of Gum arabic dropped from 320,000 Sudanese pounds (approximately 690,000 KRW) last month to 119,000 Sudanese pounds (about 250,000 KRW).

Conversely, global manufacturers attempting to stockpile large quantities of Gum arabic in preparation for summer demand are unable to secure supplies, triggering an emergency. Al Jazeera reported, "Global beverage manufacturers currently hold reserves of Gum arabic sufficient for 3 to 6 months," adding, "While there have not yet been significant production disruptions, once these reserves start to run out, shortages of carbonated drinks may follow."

Concerns are rising that if carbonated drink prices surge amid already unstable grain supplies due to the Ukraine war, it could severely impact the global economy.

◆History 1: The First Recorded Hyperinflation Began with Alexander the Great’s Conquests

Mosaic mural of Alexander III discovered at the Pompeii ruins in southern Italy
[Image source=Napoli Archaeological Museum]

Inflation caused by war has persisted since ancient times. The earliest recorded hyperinflation is said to have occurred during the Persian campaign of Alexander the Great, also known as Alexandros III of Macedonia.

Peter Temin, a professor at the Massachusetts Institute of Technology (MIT), argued in his 2002 paper titled "Price Behavior in Ancient Babylon" that hyperinflation first occurred globally during the 20 years surrounding Alexander III’s death in 323 BCE. This conclusion was based on price records found on clay tablets from Babylon, a central city in the Middle East from 464 BCE to 72 CE.

During this period, the price of wheat, Babylon’s main staple crop, fluctuated more than tenfold over 20 years, showing severe price surges. Professor Temin attributed these wheat price spikes to Alexander III’s Persian conquest wars and the massive looting of precious metals.

From 334 BCE, Alexander’s decade-long Persian campaign yielded enormous quantities of gold and silver from the Persian Empire. At the Persian capital Persepolis alone, over 3,000 tons of gold were looted. Alexander transported these precious metals overland to Macedonia using about 15,000 donkeys, with Babylon situated midway along this route.

Before and after his conquests, these precious metals were converted into gold and silver coins and circulated, triggering massive inflation. Farmland for growing crops was largely destroyed by war, and the release of hoarded precious metals from Persian palaces and temples flooded the market, causing rapid inflation. Macedonia itself was a state with minimal use of currency and little understanding of economic principles, relying mainly on a plunder economy, so it likely did not anticipate the consequences of such large-scale looting.

In ancient states with limited production and poor understanding of monetary economics, war often directly led to inflation. However, detailed records or policy reviews were rarely made, leaving most accounts as legendary stories. It was only with the advent of modern states, where economic issues strongly influenced national survival, that research into this phenomenon intensified.

◆History 2: The Deadly Inflation of the Weimar Republic That Led to Nazi Germany

A pile of Mark banknotes waiting to be issued at the Central Bank in Berlin, Germany, in 1923.

One of the most infamous cases of extreme inflation in modern times was the hyperinflation in Germany’s Weimar Republic following World War I. This deadly inflation lasted from 1921 until late 1924.

After Germany’s defeat in World War I in 1918, the country began repaying massive war reparations amounting to 132 billion marks in gold starting in 1921. At that time, the German government’s annual revenue was about 6 billion marks, meaning it would have to save its entire budget for 22 years without spending a single mark to repay the debt. The economy, already shattered by defeat, collapsed completely once the first reparations were paid. In response, the German government began printing enormous amounts of money, which only worsened the situation.

The exchange rate, which was about 90 marks per US dollar in June 1921, plummeted to 7,400 marks per dollar by early 1922. By November 1923, one dollar was worth an astronomical 4,210,500,000,000 marks. The price of a loaf of bread in Berlin, which had been about 5 marks after the war, soared to 200 billion marks. The monetary economy was completely paralyzed.

However, the situation deteriorated further. Although the German government declared it was unable to pay reparations due to economic collapse, Britain and France sent troops to occupy the Ruhr, Germany’s key industrial region in the west, fueling public anger. Britain and France argued that this was simply repayment for Germany’s demands for 5 billion francs and occupation of Alsace-Lorraine during the Franco-Prussian War of 1870. This chain of events eventually led to the rise of the Nazi regime and the outbreak of World War II.

In fact, the hyperinflation of the early 1920s in the Weimar Republic is not considered the most severe inflation in history. Around the same time, China, under Japanese invasion, experienced horrific inflation that caused over 50 million deaths from starvation. However, due to a lack of systematic records or policy reviews, it has received relatively little attention.

◆Implication: Increasing Conflict Zones and Accelerating Price Inflation Due to Global Warming

[Image source=Reuters Yonhap News]

With the prolonged war in Ukraine, rising civil wars in African countries including Sudan, and intensifying conflicts in the Middle East, the number of conflict zones is increasing, making inflation a dominant factor shaping the global economy for the foreseeable future.

Compounded by global warming, which worsens droughts and floods in major grain-producing regions, the lives of ordinary people are expected to become even more difficult. Even in the United States, where inflation has somewhat stabilized, a significant number of people reportedly experience stress due to rising prices. According to CNBC, a survey by the American Psychological Association found that over 83% of Americans suffer severe stress from inflation.

It is anticipated that inflationary pressures will ease somewhat once wars in key conflict zones end swiftly and supply chains are restored. We sincerely hope for ceasefires to be achieved as soon as possible in all conflict areas.