There has, for understandable reasons, been a lot of focus on the impact of Russia's invasion on global oil and gas prices. But commodity prices across the board have shot up with profound real world consequences. Russian and Ukraine are important food producers, together they account for one-third of world wheat exports. There’s a reason Ukraine is sometimes referred to as “Europe’s bread basket”.
But Russian tanks now roll across Ukraine’s black, fertile “chernozem” soil and Russia’s navy bombards the Black Sea ports through which grains and other goods move. Western sanctions have been carefully designed to minimise disruption to the flow of food and energy supplies but prices have spiked nonetheless. “There is true panic in the market, there have never been circumstances like this,” says Michael Magdovitz, a commodities analyst for Rabobank.
Michael Magdovitz: "This rush to find wheat across the world is not going to be satisfied in such a short period of time"
Wheat prices have risen by almost 50% in seven days. Magdovitz tells me that Iraq tendered to buy two million tonnes of wheat this morning, and he calculates it will pay around $500 million more than it would have done a few weeks ago. “You can’t physically get cargo out. The Black Sea is a war-zone, vessels are getting hit,” he says. Shipping companies, insurers and banks feel understandably hesitant about venturing into such a dangerous area or underwriting the efforts of those who are feeling bold. A glance at the live data on marinetraffic.com - I screenshotted the below image at 9:30 this morning - shows shipping lanes are deserted.
The implications of this upheaval are unthinkably grave. The surge in the price of wheat, corn, barley, fertiliser, vegetable oil and meat will be felt in the supermarkets across Europe. Inflation will push yet higher and living standards will be further squeezed. But those countries in North Africa, the Middle-East and Asia with large populations which depend on bread, in much the same way that they depend on clean water, face catastrophe. Governments in Egypt, Ethiopia, Nigeria, Algeria, Iraq, Syria, Yemen, Afghanistan, Lebanon will be in a state of alarm. “This is a market event which will cause real world hunger, food insecurity and even starvation,” says Magdovitz. “The price of bread, in parts of the world, could double or even triple”. Putin’s war in Ukraine is causing devastation and hardship far beyond its borders.