The far-reaching impact of the Russia-Ukraine conflict on global commodity trade and investment

Editor's note: The article, written by Liu Xu, executive director of the Center for International Energy and Environment Strategy Studies of Renmin University of China, reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity. 

The Russia-Ukraine conflict, which has lasted for three years, has significantly influenced both political and economic landscapes globally. Geopolitics is a key factor affecting global commodity prices and trade patterns. As the most severe geopolitical crisis of the 21st century, the Russia-Ukraine conflict has had a far-reaching impact on commodity prices and trade patterns globally.

Its impact on commodity prices shows clear time-based characteristics. In 2022, the year the conflict broke out, the prices of major global commodities fluctuated by more than 50 percent, with some commodities (such as potassium chloride fertilizer) experiencing fluctuations of over 150 percent. Research indicates a positive correlation between commodity price changes and the escalation of the Russia-Ukraine conflict. 

From February 24, 2022, to March 30, 2024, each military attack between Russia and Ukraine led to a 7.5 percent increase in natural gas prices in Europe and a 2 percent or so rise in global oil and wheat prices. As the conflict seems to become protracted, market participants' expectations have shifted, and their sensitivity to the war's impact has diminished. As a result, the war's influence on commodity price volatility is weakening. Prices of major commodities have gradually declined, though they remain at relatively high levels compared to pre-conflict prices as the conflict is still ongoing.

The fluctuations in commodity prices also vary by region and type of commodities. Global oil prices have undergone drastic volatility across Europe, the Middle East, North America, and the Asia-Pacific region. The average price rose by about 50 percent in 2022 compared to the previous year and declined slightly in 2023, but it remained well above 2021 levels. Natural gas prices have shown regional disparities. Europe has been hit the hardest, followed by Asia, and North America has experienced the least impact. European natural gas prices have more than doubled since the conflict began, while LNG prices in Asia have surged by about 50-70 percent. Although prices have dropped somewhat in 2023 and 2024, they are still higher than pre-conflict levels. Other agricultural and mineral commodities have fluctuated to varying degrees, but their price hikes have been smaller than those of energy commodities.

Another key factor behind commodity price fluctuations is the changing direction of trade flows. Economic sanctions imposed by the US, EU, and other countries on Russia and Belarus have resulted in declines in both prices and volumes in the exports of commodities from these two countries. As the EU has taken the initiative to reject energy imports from Russia, these commodities have been redirected to other countries. This has given rise to new supply-demand relationships in the global energy market, such as the US-Europe and Russia-Asia partnerships. 

In addition, Russia and Ukraine are crucial suppliers in the global food market. As sanctions and ongoing warfare have severely disrupted related logistics, global food prices have fluctuated significantly in the short term.

The Russia-Ukraine conflict has also affected the investment structure of commodities. Countries involved in the conflict, including Russia, Belarus, and Ukraine, have appeared far less appealing to foreign investment, raising concerns about the long-term supply capabilities of these regions. The surge and volatility in global commodity prices have triggered substitution effects, with major countries shifting to the production of alternative commodities and the development of alternative technologies. 

In particular, low-carbon and sustainable technologies have garnered growing interest from investors. The rise in investment in these categories has altered the global investment structure, with reduced investment in high-carbon energy and increased investment in scarce metals. This will have a profound influence on price expectations and volatility of related commodities.