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Commodity markets and the war in Ukraine

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Commodity markets and the war in Ukraine

Commodity markets have been in turmoil since the start of the war in Ukraine. There is concern about the availability of raw materials following the imposition of wide-ranging sanctions on Russia. In this Macro Flash Note, GianLuigi Mandruzzato looks at the outlook for the prices of the main commodity groups amid the ongoing crisis.

GianLuigi Mandruzzato
GianLuigi Mandruzzato

Commodity prices, from uranium to wheat and nickel, have risen strongly since Russia invaded Ukraine. The Bloomberg index of commodities has reached a new high after rising more than 25% since the beginning of the year. The price increases reflect concern that sanctions imposed by Western countries on Russia will result in shortages of raw materials for many industrial sectors. The energy sector immediately springs to mind - Russia is the largest exporter of natural gas and the second largest of petroleum products. Russia is also a large exporter of many other commodities (see Chart 1). Furthermore, Ukraine is among the main exporters of some agricultural commodities, including sunflower oil, wheat and corn.

Chart 1. Russia share of global exports of selected commodities


Source: Reuters, Bloomberg, and EFG calculations as at 11 March 2022.

Not all Russian supply will be removed from markets since some will be redirected to countries such as China, India and Iran, that have not imposed sanctions. This will free up some supply that would otherwise have gone to those countries and should help to meet demand from Western countries. In addition, for some commodities the recent price increase seems disproportionate to the potential supply disruptions resulting from Russia’s invasion of Ukraine.

The remainder of this note looks at the prospects of the main commodity groups.

Crude oil

The crude oil market may see a relatively quick supply adjustment to the new market conditions. The International Energy Agency estimates that OPEC+ countries have more than 6 million barrels per day of spare capacity compared to February output, mostly concentrated in Saudi Arabia, the UAE and Iran. This is twice the amount of oil Russia exports to Western countries. Furthermore, the US shale oil industry can add significant supply in a relatively short time horizon, accommodating US Energy Secretary Granholm’s recent plea to increase output to help moderate prices. Granholm also raised the possibility of releasing oil from strategic reserves.1

If the crisis does not escalate further and producers beyond Russia increase supply, oil prices may be close to their peak. In the medium term, they would be expected to gradually return to USD70 per barrel, a level that guarantees sufficient cash flows to producers to finance the investment needed to maintain production levels and that can be sustained by consumers.

Chart 2a. WTI price and base case forecast (USD/b)


Source: Refinitiv and EFGAM calculations as at 11 March 2022.

Chart 2b. Model forecast if crisis escalates (USD/b) 


Source: Refinitiv and EFGAM calculations as at 11 March 2022.

Conversely, in the absence of a prompt response from other producers, the availability of oil will be significantly reduced. Chart 2b shows that a temporary shortage of 2.5 million barrels per day of oil during the second quarter of 2022 could send oil prices up to USD200 per barrel. However, the oil price would subsequently fall as high prices eventually incentivise production, reduce demand, and foster a faster transition to renewable sources of energy. The convergence of prices towards USD70 per barrel would then be delayed.

Soft commodities

The spike in agricultural commodity prices reflects concerns about the availability of certain crops from Russia and Ukraine (see Chart 3a). However, agricultural commodities cannot be stored for long after the harvest and Russia, whose crops are not affected by the war, would rather sell them than see them wasted, favouring countries that have not imposed sanctions. The resulting increased availability from other producers, including Argentina, Australia, Brazil and the US, would help stabilise the market and stabilise prices (see Chart 3b). 

Chart 3a. Agricultural commodity prices (31.12.2020=100) 


Source: USDA, Refinitiv and EFGAM calculations as at 11 March 2022.

Chart 3b. 2021/22 estimated wheat export split 


Source: USDA, Refinitiv and EFGAM calculations as at 11 March 2022.

However, agricultural commodity prices were rising even before the Ukraine crisis due to increased demand and rising costs, including energy, transportation and fertilisers, the availability of which will also be limited by sanctions on Russia. Prices are therefore likely to remain higher than in recent years.

Industrial metals

Prices of industrial metals have risen substantially since mid-2020 partly because many are key in the transition to a zero-carbon economy. However, prices have recently fallen below the level implied by demand as measured by the Emerging Market PMI survey (see Chart 4). 



Chart 4. EM PMIs and industrial metals prices


Source: Refinitiv and EFG calculations as at 11 March 2022.

The outlook for prices is mixed. For some products, like aluminium and copper, there is spare capacity in Chile, China, the EU, and the US: a moderation of prices seems likely over time. For other products, like nickel, titanium, and uranium, Russia and Ukraine historically supplied a large share of global output and it will be difficult to find alternative suppliers, creating the conditions for continued high prices.

Precious metals

Unsurprisingly, the increase in risk aversion after the start of the war in Ukraine pushed the price of gold to the high end of the range projected by long term fundamentals (see Chart 5a). As is often the case, the price of silver followed a similar pattern (see Chart 5b). The sustainability of current high prices is strictly dependent on how the crisis unfolds: a de-escalation would reduce demand for safe-haven assets and lead markets to focus again on central banks’ expected monetary policy normalisation.

Chart 5a. Gold price and its fair value


Source: Refinitiv and EFGAM calculations as at 11 March 2022.

Chart 5b. Precious metals prices (31.12.2020=100)


Source: Refinitiv and EFGAM calculations as at 11 March 2022.

Prices of other precious metals, like palladium and platinum which are also industrial metals mostly used in the automotive sector, have been squeezed consistent with concern about their availability given the dominant role of Russia (see Chart 5b). Beyond a possible de-escalation, one longer-term structural headwind for the prices of platinum and palladium is a faster transition to renewables, including increased demand for electric vehicles, sparked by the surge in energy prices.


In the short-term, commodity prices will remain driven by news flow about the war and sanctions. Over the longer-run, supply from other countries will progressively step in to substitute missing Russian and Ukraine exports. Although this process will differ across commodities, it seems likely that the risk premia currently embedded in commodity prices will decrease, helping prices to moderate.

This is expected to be the case for crude oil, gold, soft commodities and some industrial metals, including copper and aluminium. In contrast, price tensions are likely to persist for those commodities for which supply from Russia and Ukraine has historically dominated global markets, including refined uranium, palladium, nickel and titanium. Also agricultural commodity prices will remain elevated reflecting the increase in input costs like energy and fertilisers.