How the Ukraine war is shocking global food and metal markets


Russia’s invasion of Ukraine shocked the world. Now it’s shocking global food and metal markets.

As the Russian invasion of Ukraine grinds on, the economic effects of the war are beginning to be felt in the markets for oil, gas, grain and even some strategic metals.

“What’s going on in Ukraine has a bunch of second-, third-, and fifth-order effects in addition to its direct effects,” said Cullen Hendrix, a professor of economics at the University of Denver and a nonresident senior fellow at the Peterson Institute for International Economics.

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While commodities are heavily financialized through markets in derivatives like futures, where traders can pay for commodities to be delivered at a certain date, they are still physical stuff, meaning that their prices can be hostage to physical constraints. To hold up currency flowing, governments can implement sanctions and tell banks not to work with certain actors, whereas commodities can be literally unable to move place to place because a crowded seaway has become a war zone or because workers can’t safely remove them from the ground.

The effects could be profound; Lebanon and Egypt wonder if they will have enough grain to feed their populations, and anyone who is buying or making an electric car — one of the centerpieces of European and U.S. climate policy — wonders if they’ll have enough nickel to make a battery.


“Farmers have to make decisions very shortly about what they’re going to put in the ground this year; we just don’t have the ability to adapt quickly in our food chain,” said Thomas Emanuel Dans, a co-founder of Amberwave Partners who served as counselor to the undersecretary for international affairs at the Treasury Department. “Our food chain has not been built to adjust to this kind of threat.”

In a collective statement, the agriculture minister for the Group of Seven encouraged countries to keep agricultural markets open and “guard against any unjustified restrictive measures on their exports,” fearing that “any further increase in food price levels and volatility in international markets could threaten food security and nutrition at a global scale, especially among the most vulnerable living in environments of low food security.”

And even beyond any given commodity that’s been disrupted by the Russian invasion, there’s the shipping infrastructure that moves commodities around, much of which is staffed by Russians and Ukrainians.

Oil and natural gas

Oil prices have swung wildly since the invasion, rising to above $130 per barrel — and causing gas prices in the U.S. to hit their highest level ever — before falling to near their preinvasion level early this week. However, oil prices are still elevated, having risen around $20 per barrel between the end of 2021 and Russia’s invasion in late February.

“It’s hard to say whether it’s going to be a temporary spike or more lasting on the fuel side. Preinvasion, there was a lot of risk priced in,” Hendrix said.


Russian oil and natural gas exports have the most weight in the global economy, both of which Russia produces and sells in massive numbers. While the U.S. is only a small consumer of Russian oil, there have been difficulties in general selling Russian oil on world markets even as countries outside the U.S. have either not sanctioned Russia at all or specifically exempted energy.

And Russian gas is still flowing freely, especially to Europe, which relies on Russia for about one-third of its natural gas supply.

In the short term, countries hit by high energy costs can’t do much to find other supplies to either replace Russian imports or bring down what consumers are paying. While Europe has a long-term plan to wean itself from Russian gas, right now some countries are trying to directly aid consumers by cutting taxes.

Three weeks into the Russian invasion of Ukraine, however, oil prices dipped to 20 percent from their high following the war’s beginning and the United States’ ban on Russian oil imports. Analysts attributed the rapid seesawing in price to a number of factors, including a report showing an expected growth in oil stockpiles, covid shutdowns in China affecting oil demand, weaker forecasts for global economic growth, and the possibility of Iran’s potential ability to rejoin global oil markets if a multilateral deal over its nuclear program is reached soon.


Besides oil and gas, the commodity that’s gotten the most attention from the dawn of the conflict through today has been grains, especially wheat. According to the International Food Policy Research Institute, Ukraine and Russia make up over 35 percent of the market share in wheat and over 20 percent in barley, along with a dominant position in sunflower oil. These exports are heavily relied upon by larger, poorer countries that are not agriculturally self-sufficient, especially in North Africa and the Middle East.

“Ukraine and Russia are the breadbasket of the world, particularly for the Middle East,” said David Laborde, a researcher at the International Food Policy Research Institute.

The outbreak of war was an accelerant for an already heating-up global food market — prices for wheat futures had already risen about 15 percent from the beginning of the year through the day before Russia’s invasion, only to rise over 20 percent through the beginning of this week.

“The movements in food and energy prices started before Feb 24. There’s a … path upward that’s been exacerbated by this,” Dans said.

“Most of the shipments that should have left Ukraine and Russia are being disrupted due to military operations; grains that exist today in Odessa cannot reach consumers. We are creating a shortage on the spot,” said Laborde.

Egypt has responded with a ban on exports of wheat, while Russia is reportedly considering an agricultural export ban as well.


“But then the big question next is how long Russia and Ukraine are going to be out of the market,” Laborde said.

With agricultural commodities, there’s only so much rerouting and re-sourcing one can do — at a certain point, there’s either sufficient supplies or there isn’t.

Ukraine’s winter wheat is planted in the fall, meaning there is a great deal of future uncertainty not just about the movement of grains but the production of them going forward.

“If the fighting continues and you have a full-scale disruption of the Ukrainian harvests of winter wheat, barley and rapeseed oil, it’s not just a risk premium with global food prices, it will literally be a supply issue. You can’t just go back in time to plant more crops in Russia and Kazakhstan to offset production,” Hendrix said.


To plant, farmers need fertilizer, and Russia is one of the dominant exporters of nitrogen and potash fertilizers, alongside its neighbor and ally Belarus. The crisis has also led to a spike in natural gas prices, which are used to actually turn the underlying materials into fertilizer. High prices and outright shortages have even led some fertilizer plants to shut down, and the Norwegian fertilizer giant Yara has said it would shut down plants in Italy and France due to high prices. A U.S. index of fertilizer prices has soared almost 30 percent from the week before Russia’s invasion.


The fertilizer and agricultural commodities markets can interact in dynamic ways. While the high prices of wheat could encourage farmers outside of Russia and Ukraine to grow more of it, soy requires fewer expensive fertilizer inputs than corn or wheat. For wheat that does get planted, crop yields could go down, raising prices further.

“If you’re a farmer getting ready for the spring planting season, the effects of the war are a pretty big concern. Russia is the biggest exporter of ammonium nitrate-based fertilizers,” Hendrix said.

The United States is a major food exporter and does not have the same food security issues that large, poor countries in the Middle East and North Africa do, but higher global food prices could drive inflation, already at its highest level in almost 40 years, even higher.

“With the new pressure on food and energy commodities, [inflation] is likely to remain elevated well into 2023,” 3Fourteen Research said in a note Friday. “Based on these new assumptions, the CPI could leap into double-digits in the next few months.”


The price of nickel shot up so high on the London Metal Exchange that it halted trading. While Russia is a large exporter of nickel, which is used in electric car batteries and is a key input in stainless steel, the war is not the only reason for the price spike on the exchange.


The nickel shortage was exacerbated due to financial shenanigans by major Chinese nickel company Tsingshan, which had bet against the price of nickel rising.

But the price of nickel matters for far more than just trades in London. Tesla founder Elon Musk has called nickel price hikes “our biggest concern for scaling lithium-ion cell production,” a kind of battery that uses nickel. In a shareholder letter, the electric car company Rivian said it was developing a non-nickel battery for some vehicles.

“One of the nice things about having multiple different chemistries across our portfolio is it essentially provides a bit of a hedge around some of the different materials that go into different battery chemistries, in this case, of course, referring to nickel,” Rivian chief executive officer RJ Scaringe said in a call with investors. While this may seem like a large change to make in a short time, Rivian has made fewer than 2,500 vehicles.

Prices of palladium, a metal used in catalytic converters, a car part used to reduce emissions, have swung wildly since the invasion. Russia is the world’s largest producer of the precious metal.

A wide suite of metals has seen price increases, including aluminum, uranium and zinc. Analysts at Morgan Stanley wrote that “demand destruction” — purchasers of commodities simply forgoing them because the price is too high — is “inevitable … given the magnitude of the potential shortages … it’s difficult to consume what’s not produced.”

This story has been updated.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.