Ukraine Crisis: Immediate Implications For Commodities
The escalation of military tension in Crimea could have significant implications for global commodity supply chains and we are thus recalibrating many of our short-term price views. A direct Russian intervention to defend the country's interests in Ukraine was not our core view, but tensions between the two countries have since increased significantly with a build up of Russia military presence in Crimea over recent days. While the diplomatic situation remains fluid, we see economic sanctions imposed by Western powers on Russia as a potential scenario. We are currently exploring the impact on the global commodities supply chain of such an outcome, but for now present the most pressing near-term implications. In particular, we flag significant upside risks to the price of grain and energy, for which Russia is a major global supplier. Gold prices also face upside risks due to the threat these events pose to global economic growth.
Energy: In The Crosshairs
Unsurprisingly, we flag significant upside risks to oil and gas prices. We are currently exploring the likelihood and potential impact of disruption to Russian oil and gas exports, particularly for the European market. Whether or not disruption occurs, uncertainty looks set to last over the coming weeks and this should boost energy prices. In particular, Brent Crude has broken resistance at US$110.50/bbl and we see room for further gains in the days ahead. Of particular concern to the eurozone economy, natural gas prices face even more significant upside risks than oil due to Russia's status as the dominant gas supplier to the region. NBP (UK) and German Gas prices have already ticked up 6.0% and 3.4% on March 3 and any move closer to economic sanctions on Russia would see them rise further, due to the potential for Russia to restrict gas flows west as a retaliatory move.
|Front-Month Brent Crude, US$/bbl (daily)|