Commodities traders brace for a war in Ukraine (The Economist – January 26, 2022)

Tight markets mean that prices are all too responsive to rising tensions

“IF RUSSIAN TANKS cross the border, markets will freak out.” That is the considered judgment of Helima Croft, head of commodity strategy at RBC Capital Markets, an investment bank, and a former analyst at America’s Central Intelligence Agency.

Were Russia to invade Ukraine, the biggest impact would first be felt on Europe’s gas markets. But Ms Croft is not alone in thinking that the shock waves would spread widely.

The potential for disruption stems from Russia’s huge importance for commodity markets (see chart 1). It is the world’s biggest exporter of natural gas, and the second-largest exporter of oil. It supplies nearly a tenth of the world’s aluminium and copper, and produces 43% of palladium, a key component of catalytic converters. It is also the largest exporter of wheat.

The worst-case scenario is that the flow of these vital raw materials is cut off as tensions escalate. That could happen because Russian exports, or the payments infrastructure needed to facilitate them, are hit by Western sanctions.

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