Global commodity markets were thrown into turmoil when Russia sent troops to Ukraine on February 24 in the face of repeated warnings and threats of stricter sanctions from the West. The invasion sent prices of commodities ranging from oil and gas to wheat higher, while stock markets across the globe plunged.
Trade will be further stifled as fund flows dry up following sanctions on Russian banks by the US and UK for Moscow’s “unprovoked” attack. Some European banks have imposed restrictions on finance for commodity trade from Russia and Ukraine.
Two European banking giants, ING Groep NV and Rabobank, are imposing restrictions on lending for deals involving movement of commodities from Russia and Ukraine, Bloomberg reported. The commodities trading industry has for decades depended on short-term finance from international banks. Disruption of fund flow is likely to impact shipment of metals, agricultural products and energy around the world.
As the crisis takes a turn for the worse, supply chains are likely to get disrupted, adversely affecting countries in Asia because most economies in the continent are net oil importers, a Nomura report said. India, Thailand and Philippines are likely to be the biggest losers of the ongoing crisis, the report said.
Russia, Ukraine crop heavyweights
Russia and Ukraine export wheat to several countries. While Russia accounts for about 20 percent of the world’s wheat exports, Ukraine supplies 10 percent, data from the Food and Agriculture Organisation (FAO) of the United Nations showed. A prolonged crisis could lead to pantry staples such as pasta, flour and bread becoming more expensive.
Apart from this, Ukraine is also a big producer of corn, sunflower seed oil, barley and rye and much of Europe depends on it.
Together, the two countries account for about 80 percent of world’s sunflower oil exports and 19 percent of world corn supplies, Reuters reported. With tensions escalating between the two crop heavyweights, traders are worried that it could lead to buyers looking for alternative shipments to replace supplies from the Black Sea region.
Who will be affected?
As disruptions in supplies from Russia and Ukraine impact overall global availability, buyers in the Middle East and Africa will be seeking alternative sources, Reuters quoted Phin Ziebell, agri-business economist at National Australia Bank, as saying.
According to Refinitiv shipping data, about 70 percent of Russia’s wheat exports in 2021 went to buyers in the Middle East and Africa.
Disruption of supply of wheat and corn to the Middle East and Africa could affect food security in those regions, Dawn Tiura, President at Sourcing Industry Group, told CNBC.
“China is also a big recipient of Ukrainian corn,” she said, adding that the country had replaced the US as top corn supplier in 2021.
Last year, Russia had imposed an export tax to limit wheat shipments in order to bring down domestic food prices. Further restrictions could lead to social unrest in countries such as Egypt, Turkey and Kazakhstan that import the wheat, The New York Times reported.
Till now, Russia has already exported two-thirds of wheat and barley for the season, analysts at Rabobank said in a note on February 18. However, further sanctions could remove the remainder of the crop from foreign markets, sending global prices up by nearly a third, the analysts said.
Bilateral trade with India
Although Ukraine and Russia are not major trading partners of India, some sectors and commodities could feel the heat of the tensions in the two countries.
In 2021, the two-way trade between India and Ukraine stood at $3.1 billion. Exports from India stood at $510 million. Pharma products made up for most of the exports at 32 percent, while other exports included iron and steel, agro-chemicals, telecom instruments and coffee. Imports from Ukraine stood at $2.6 billion in 2021, of which $1.85 billion comprised vegetable oils, mainly sunflower oil, Business Standard reported.
Imports from Russia stood at $8.6 billion last year, with India sourcing crude oil, petroleum products, gold, precious stones, coal, fertilisers and precious metals. Russia is also the biggest arms supplier to India, making up almost half of the total arms imports.
Impact on Indian industry
The Indian edible oil industry is worried that geopolitical conflict may delay imports and raise the price of sunflower oil. Together, Ukraine and Russia account for 90 percent of India’s sunflower oil. Prices could skyrocket if the situation heads south, industry watchers said.
“A slight delay is fine but if it (supply) stops then there will be a shortage and prices can go haywire,” Deccan Herald quoted Sandeep Bajoria, CEO of consultancy in oils and oilseeds firm Sunvin Group, as saying.
Out of India’s total 25-lakh tonne sunflower oil import, Ukraine supplies 17 lakh and Russia sends two lakh tonnes, Bajoria said, pegging the trade with the two countries at about $3 billion.
Russia may be the world's largest exporter of wheat, but its conflict with Ukraine is likely to have negligible impact on India's foreign trade, PTI reported quoting sources. On the other hand, the crisis could boost exports from the country to the global markets, the sources said.
At present, India's central pool of wheat is 24.2 million tonnes, which is twice more than the buffer and strategic needs.