Wild Spikes in Commodity Prices as a result of Russian – Ukrainian conflict

Commodity prices have soared significantly over the past month, there were several factors that lead to this, the major one being high demand due to supply interruption because of war in Ukraine. The global commodity prices are now on track for the biggest weekly price spike in more than fifty years. The S&P GSCI index has increased by 27%. Jeremy Grantham, co-founder of GMO commented that “Russia’s attack on Ukraine makes everything more unpredictable but one certainty – this war will increase the pressure on raw materials in the short term”. Apparently, this will create shortages of oil, gas and metals, and the prices for these commodities will increase dramatically.


Crude Oil Prices


Historically, spikes in oil prices have always preceded a recession, which means a temporary spike, but it seems almost certain that high energy prices are here to stay. Considering that the oil and gas prices were already rising before Russia invaded Ukraine on February 24, the potential embargo on Russian raw materials  will cause oil prices to increase further. Since Russia is the second largest oil producer in the world and the largest supplier of natural gas to Europe it will be nearly impossible to replace the Russian oil supply immediately, and the fears that the US and Europe would impose sanctions on Russia’s energy sector, disrupting supplies, will only escalate the situation.

If America stops buying Russian oil the impact will be minimal, currently they only source 7% of their oil imports from Russia. The United States reached its energy independence right before the Covid 19 pandemic and the growing oil prices will expectedly encourage more private investment in oil production. But the US ambitions to become the biggest supplier of crude oil in Europe will also increase prices.


Gas Prices


About 25% of European energy consumption comes from natural gas, which means the EU, in particular, is very dependent on Russia. Germany currently imports 90% of its energy, and renewables are not going to fill the gap if they decide to reject Russian gas.

Elsewhere in Europe there are more fears of a global energy supply disruption. The price of British gas has increased by 53%, and Dutch gas prices have increased by 57% on delivery contracts in March. The price for the gas in the US has begun to decline after it reached a peak on March 11, but not everywhere. Gas prices in California have continued to rise, mostly because of high gas taxes and expenses on regulatory programs. Regardless, the prices for gas will most likely keep rising as the United States is taking the position of the biggest supplier of oil and gas in Europe. Biden has already committed to send an additional 15 billion cubic meters of natural gas to the EU, which will inevitably send prices higher due to the higher cost of American gas production and logistics.


Metals Prices


On March 8th the Nickel market broke, and problems started to spread to other industrial metals like zinc. Nickel, with its typical change by a few hundred dollars per day, had jumped almost $20,000 on Monday last week, and then doubled again, starting the trades at $100,000, which means the 240% growth within 24 hours. The price of nickel is really important for the global economy, as it’s an important metal used in making stainless steel, magnets and rechargeable batteries. Russia has been a supplier of over 20% of the world’s high-quality nickel. All this happened because of the Western ban on buying Russian nickel after the invasion of Ukraine, which had increased demand for nickel from other places, like China, and led to the price jump on the London Metal Exchange. The trend for high prices will be maintained in the short term, but overall, analysts generally agree that nickel production would likely outpace demand in the medium term, and if the impacts from the geopolitical tension ease, the nickel prices should be normalized.

Russia is also the leading global producer of palladium, making up 40% of global palladium supply, and in addition, it is the number two global source of platinum. As both metals are widely used in the car manufacturing industry. The Ukrainian crisis will have an impact on the car and heavy machinery prices in the long term.




Since Russia is the third largest producer of oil and gas in the world, and one of the biggest metal suppliers, producing around 10 million barrels of oil per day and 195 thousand tons of nickel in 2021, the sanctions and unwillingness of the European countries to deal with Russia led to the sharp increase in commodity prices. The EU dependence on Russian oil and gas will make it impossible to switch to a different energy source in the short term, so the US will try to replace Russian supplies in the near future, which will increase prices even further due to the cost of production and logistics. Although the American economy is at its peak right now, the Russian-Ukrainian war has created significant changes in the markets for energy, key metals, and even food grains, so most American economists are now projecting a recession in the US within the next two years.

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