Commodities – Feature


Russia’s invasion of Ukraine is not only about politics. If Vladimir Putin is victorious he will tighten his grip over the world’s commodity markets. Ukraine is not only a large producer of grain and sunflower oil, but the Donbas region hosts abundant lithium resources, a key ingredient in the manufacture of electric vehicles. While it remains to be seen whether Putin’s gamble will pay off, the war between two huge commodity pro- ducers has sent ripples through global markets. Russia and Ukraine account for almost a quarter of global wheat imports and 20% of vegetable fats. Russia is also a key exporter of nickel, coal, lead, aluminium and, of course, natural gas.


It did not take long for the cost of the war to feed through to the global com- modity markets. Natural gas prices in Europe surged by 50% in March, as did the average global cost of wheat, while fertiliser prices in the US leapt by close to 40%, according to the Institute of International Finance (IIF). The consequences will be severe, par- ticularly for countries heavily depend- ent on Russian and Ukrainian grains, predicts Elina Ribakova, the IIF’s dep- uty chief economist. “With world food prices at multi-decade highs, we worry about global food security,” she says, believing that the war poses a threat to this year’s harvests in Russia and Ukraine.


Deep impact At first glance, it appears that the UK is only marginally affected by the war. Trade with Russia accounts for 1% of the UK’s global transactions and it buys 13% of its energy from Putin, while Germany relies on a third of its fuel from Russia. But the impact on Britain’s economy has been more severe than anticipated.


Issue 113 | May 2022 | portfolio institutional | 35


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