El Niño 2026: why businesses should pay attention

El Niño is strengthening across the tropical Pacific and could become one of the more powerful events of recent decades. Current forecasts suggest it will intensify through the second half of 2026 and remain influential into early 2027.

That matters well beyond meteorology. El Niño can alter rainfall, temperature and storm patterns across large parts of the world, affecting agriculture, fisheries, water supplies and power generation. Those physical effects can then feed through into commodity markets, supply chains, insurance losses and corporate earnings.

The 2026 event is notable for the speed of warming in the Pacific and the volume of heat below the ocean surface, as well as clear signs that the atmosphere is responding. A positive Indian Ocean Dipole — another climate pattern that affects rainfall around the Indian Ocean — is also expected to develop alongside it. All of this is taking place against an unusually warm global climate background.

The result is not a forecast of uniform disruption. El Niño changes probabilities rather than determining individual weather events. But for businesses exposed to climate-sensitive regions and natural resources, those probabilities are becoming more relevant.

What is El Niño?

El Niño is the warm phase of the El Niño–Southern Oscillation, or ENSO, a recurring shift in conditions across the tropical Pacific.

Under normal conditions, easterly trade winds push warm surface water towards the western Pacific, while cooler, nutrient-rich water rises off the coast of South America.

During El Niño, those winds weaken and warmer water spreads eastwards. This changes where heat and rainfall are concentrated across the tropics and can, in turn, affect atmospheric circulation much further afield.

The consequences vary by region. Some areas become more prone to drought and heat; others to heavy rainfall and flooding. Marine ecosystems can also be disrupted as warmer surface water reduces the upwelling of colder, nutrient-rich water.

El Niño is therefore not a single weather event. It alters the background conditions in which weather develops, increasing the likelihood of certain extremes while reducing the likelihood of others. NOAA provides a useful overview of the mechanism and its typical effects.

Why is the 2026 event attracting attention?Several features of the current El Niño stand out.

The first is the pace of warming. By July, parts of the tropical Pacific were already roughly 1°C to 3°C warmer than normal. There is also a substantial volume of unusually warm water below the surface, creating a reservoir of heat that could sustain further warming over the coming months.

Warm water alone does not necessarily produce a powerful El Niño. The atmosphere has to respond as well. That now appears to be happening: winds and rainfall patterns across the Pacific are shifting in ways that reinforce the ocean warming. The warmer Pacific is changing the atmosphere, while those atmospheric changes are helping to maintain the warmer Pacific.

Current forecasts also put the event towards the upper end of the historical range. NOAA’s August outlook gives El Niño a greater than 90 per cent probability of becoming very strong during the northern hemisphere autumn and winter of 2026-27. Its median forecast for the Relative Oceanic Niño Index reaches about 2.7°C during October to December, with a 69 per cent probability of reaching at least 2.5°C.

On NOAA’s older Oceanic Niño Index, the major El Niños of 1982-83, 1997-98 and 2015-16 peaked at roughly 2.2°C, 2.4°C and 2.8°C respectively. The 2023-24 event reached around 2.1°C.

Those measures are not directly comparable. NOAA’s newer relative index adjusts for the fact that tropical oceans have become warmer overall, while the 2026 figures are forecasts rather than observed peak values. They nevertheless explain why the current event is being compared with some of the strongest El Niños of recent decades.

Other climate patterns will also influence where its effects are felt. A positive Indian Ocean Dipole, or IOD, is expected to develop alongside El Niño. In its positive phase, the IOD tends to favour wetter conditions around East Africa and drier conditions around Indonesia and parts of Australia. When the two occur together, they can reinforce these regional shifts in rainfall.

The global ocean is also considerably warmer than it was during the major El Niños of the 1980s and 1990s. That complicates historical comparisons, but can also increase heat stress, evaporation, atmospheric moisture and marine heat exposure.

Taken together, these factors explain why the 2026 event is attracting unusual attention. A high El Niño index does not guarantee severe losses: the eventual impact will depend on where weather anomalies occur, what is exposed to them and how vulnerable those regions and sectors are.

Agriculture is among the clearest exposures

Agriculture is one of the sectors most directly affected by shifts in rainfall and temperature.

Current risk assessments point to higher agricultural drought risk across parts of southern Africa, South and Southeast Asia, Central America and the Caribbean.

Southern Africa is a useful recent example. During the 2023-24 drought, Zimbabwe’s maize yield fell about 60 per cent below its five-year average, according to the World Bank. A renewed rainfall deficit during the 2026-27 growing season would put crops, livestock and pasture under pressure again.

Rainfall deficits affect soil moisture first, then crops and yields. Commodity prices, imports and food manufacturing costs can respond later. A climate shock in late 2026 could therefore remain visible in food markets well into 2027.

Fisheries offer another transmission route

Peru’s anchoveta fishery shows how an ocean-temperature anomaly can move into global markets.

During the previous El Niño, unusually warm water disrupted the nutrient-rich upwelling off the Peruvian coast. Anchoveta distribution and reproduction were affected, and annual landings fell to about 1.99mn tonnes in 2023, their lowest level since 1999.

Anchoveta is an important source of fishmeal and fish oil used in aquaculture and animal feed. Lower supply contributed to higher fishmeal and fish-oil prices, creating costs further down the value chain.

With the eastern Pacific already unusually warm, Peru and Ecuador will be among the areas to watch as the current event develops through late 2026 and early 2027.

Water shortages can become energy shortages

Water is another route through which El Niño can affect businesses.

In regions dependent on hydropower, prolonged drought can reduce reservoir inflows and eventually constrain electricity generation.

The recent southern African drought again provides an example. Lower rainfall reduced agricultural output but also constrained generation from Lake Kariba, contributing to power shortages that affected industry and irrigated agriculture.

These effects often emerge with a lag. Crops can respond quickly to failed rainfall; reservoir levels may take longer to fall.

Higher temperatures create another pressure by increasing demand for cooling. In some markets, El Niño can therefore constrain electricity supply while increasing demand at the same time.

Supply chains are exposed indirectly

The Panama Canal is perhaps the clearest recent example of a local climate shock becoming an international business problem.

In 2023, rainfall across the canal watershed was about 25.6 per cent below its long-term average. Water levels in Gatún Lake fell and the Panama Canal Authority reduced the number of daily vessel transits from a normal level of roughly 36 to 22.

A shortage of rainfall in one relatively small watershed became a constraint on one of the world’s most important trade routes.

Current forecasts again favour drier conditions across southern Central America.

That does not guarantee another round of canal restrictions. Local rainfall, starting reservoir levels and water management will determine the outcome.

Even if a company’s own facilities are relatively insulated, they may still be critically exposed through a key supplier, commodity or logistics route.

Finance tends to feel the effects later

The economic effects of major El Niños can persist well beyond the climate event itself.

One study estimated cumulative global output losses of about $1.3tn following the 1982-83 El Niño, $2.1tn after 1997-98 and $3.9tn after 2015-16, measured across the event year and the following three years.

Those figures should not be read as a forecast for 2026. The global economy and its exposure have changed substantially, and the geographical pattern of the current event is not yet known.

They do, however, illustrate the range of channels through which losses can persist. Insurers can face claims from flooding, drought, wildfire or crop failure. Banks may be exposed through weaker borrowers, while investors can see the effects through commodity prices, infrastructure damage or lower margins at portfolio companies.

Looking ahead

The precise consequences of the 2026 El Niño will become clearer over the coming months. Its eventual strength remains uncertain, and even a very strong event will produce different outcomes across different regions.

What is already apparent is the range of potential transmission channels: from rainfall and temperature to crops, fisheries, water and energy, and from there into prices, supply chains and company performance.

For businesses, the most relevant exposure may not sit within their own facilities. It may lie in a supplier, a commodity, a water-dependent production region or a transport route elsewhere in the value chain.

The most useful indicators will therefore not be measures of El Niño’s strength alone. Increasingly, attention will shift to what is happening in the specific regions, natural resources and supply chains to which companies are exposed.