01/07/2022 14:44 War and sanctions have caused commodities chaos | The Economist 01/07/2022 14:44 War and

conomist 01/07/2022 14:44 War and sanctions have caused commodities chaos | The Economist
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1973, and one of the worst disruptions to wheat supplies since the first world war.
Menu FO Although commodity exchanges are already in chaos, ordinary folk have yet to feel the
full effects of rising petrol bills, empty stomachs and political instability. But make no
mistake, those things are coming—and dramatically so if sanctions on Russia tighten
Leaders | Fuel, food and fury further, and if Vladimir Putin retaliates. Western governments need to respond to the
War and sanctions have caused commodities chaos commodity threat as determinedly as to Mr Putin’s aggression.

The world must rise to the challenge The turmoil unfolding in energy, metals and food markets is broad and savage. Overall
indices of commodity prices are now 26% higher than at the start of 2022. The cost of a
barrel of Brent crude oil has swung wildly around levels that indicate the biggest supply
shock since Saddam Hussein’s army crossed from Iraq into Kuwait in 1990. European gas
prices have almost trebled amid panic that pipelines from the east will be blown up or
starved of supply. The price of nickel, used in all electric cars among other things, has
spiralled so high that trading in London has been halted and Chinese speculators are
nursing multi-billion-dollar losses.

Such are the consequences of Mr Putin’s decision to drive his tanks across the
Mar 12th 2022 (Updated May 17th 2022)
breadbasket of Europe, and the subsequent isolation of Russia, one of the world’s biggest
commodities exporters. Western sanctions on Russian banks have made lenders,
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insurers and shipping firms wary of striking deals to carry Russian cargoes, leaving
growing piles of unsold industrial metals and an armada of vessels full of unwanted

G lobal commodity crises tend to cause severe economic damage and political
upheaval. The oil shocks of the 1970s left Western economies with runaway
inflation and deep recessions. Oil revenues also helped prop up the Soviet Union and
fuelled the export of Saudi extremism. Soaring grain prices in 2010 and 2011 were a
trigger for the street protests that led to the Arab spring and the toppling of dictators.
Urals crude. Stigma and danger have caused others to stay away. Shell has abandoned
buying Russian crude oil after a backlash. The Black Sea is a no-go zone for commercial
shipping because some vessels have been hit by missiles and Russia is menacing
Ukrainian ports. Not many seeds will be planted in Ukraine’s blood-soaked fields this
spring.

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Today Russia’s invasion of Ukraine is unleashing the biggest commodity shock since
https://www.economist.com/leaders/2022/03/12/war-and-sanctions-have-caused-commodities-chaos
It could get worse. On March 8th, in the latest measure to increase pressure on Mr Putin,
America announced that it would ban purchases of Russian oil. The United States is a
small consumer of Russian crude, but if the European Union were to join the embargo,
about two-thirds of the 7m-8m barrels a day of exports of Russian crude and refined
products would be affected, equivalent to about 5% of global supply. A full global
embargo, enforced by America, could send the oil price towards $200 a barrel If Russia
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01/07/2022 14:44 War and sanctions have caused commodities chaos | The Economist
embargo, enforced by America, could send the oil price towards $200 a barrel. If Russia
were to retaliate by limiting gas flows, Europe would reel: last year the eu relied on
Russia for 40% of its consumption. Meanwhile, bitter experience teaches that countries
often respond to food shortages by banning exports, leading to a tit-for-tat breakdown in
global trade.
The effects of this commodity calamity could be brutal. If you look narrowly at the
economy, the world is far less energy-intensive per unit of gdp than in the 1970s.
Nonetheless, global inflation, already at 7%, may rise by another two to three percentage
points, to a level last seen for a sustained period in the early 1990s, when Mr Putin was
doing mafia deals in St Petersburg and globalisation had yet to flourish. Growth may
slow as firms’ confidence is knocked and interest rates rise.
In the political realm, leaders in the West will have to face furious voters, not least in
America’s mid-term elections in November. Remember the gilets jaunes protesters in
France in 2018, furious at the cost of petrol. In poorer countries where food and fuel are a
larger part of people’s spending, the backlash could be still more violent: food-price
spikes in 2007-08 led to riots in 48 countries, and there are already signs of panic and
unrest today.
War in Ukraine: the emerging global food crisis | The Econ…
Econ…
Such a panorama of suffering and instability is worrying in its own right. But it also
threatens to undermine the credibility of the Western response to Russia’s decision to
start what may become the largest war in Europe since 1945. The greater the global pain,
Mr Putin may judge, the harder it will be for the West to sustain the sanctions: all he has
to do is wait it out.
https://www.economist.com/leaders/2022/03/12/war-and-sanctions-have-caused-commodities-chaos
01/07/2022 14:44 War and sanctions have caused commodities chaos | The Economist
That is one more reason for Western governments to counter the ill effects of the
commodity crunch. The priority is to boost supply. American allies in opec, including
Saudi Arabia, have declined to pump more oil, but more adept American diplomacy
could yield results. Rich countries could speed up the release of the 1.5bn barrels of oil
they hold in reserve. Having disparaged America’s shale-frackers, the Biden
administration needs to prod them to drill more. The eu must promote or prolong its
use of nuclear, renewable and coal-powered generation, so as to stock up on gas for the
winter. It should also prepare for the worst case: gas rationing. Rich-country
governments may have to protect the poor at home with handouts. Stimulus could mean
higher interest rates or taxes, but that is a risk worth taking to protect the world against
an aggressor.
Digging deep
Whatever the privations of rich countries, poorer ones are in worse trouble. So the West
must strengthen the global financial safety-net. Some food and oil importers may face a
balance-of-payments squeeze and tumbling currencies. Even in Europe, some countries,
such as the Baltic states, are vulnerable to gas cut-offs. The Federal Reserve and the imf
should make it easier for friendly but fragile countries to gain access to hard-currency
loans. And Europe should press ahead with an idea to issue joint debt to help spread the
costs of the crisis.
A world facing a physical shortage of raw materials dug up from the ground seems like a
throwback to an earlier age. Yet that is exactly the predicament that lies ahead. After
decades of drift, the West has shown resolve and cohesion by confronting Mr Putin’s
aggression. Now it must match that by showing leadership in the teeth of the economic
storm. 7
Read more of our recent coverage of the Ukraine crisis
This article appeared in the Leaders section of the print edition under the headline "Fuel, food and fury"
Leaders
March 11th 2022
→ War and sanctions have caused commodities chaos
→ The British government’s response to Ukrainian refugees is sadly
typical
→ South Korea’s new leader must restore his citizens’ faith in politics
→ Will China offer Russia financial help?
→ The Stalinisation of Russia
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